Last week, mortgage rates dropped to the lowest level since April, which should theoretically make housing more affordable for buyers. However, mortgage demand remained weak as total mortgage application volume only increased by 0.5% from the previous week. The average contract interest rate for 30-year fixed-rate mortgages also decreased slightly, which led to a small boost in applications to refinance home loans. Refinance applications increased by 5% for the week and were 7% higher than the same week last year, with VA refinances seeing a particularly strong week. However, the overall level of refinance activity remains low.
Applications for a mortgage to purchase a home decreased by 2% for the week and were 14% lower compared to the same period last year. The decline was largely driven by a 9% drop in FHA applications, which are commonly used by first-time or lower income buyers due to their smaller down payment requirements. Despite the slight drop in mortgage rates, rates are still higher than they were a year ago and for-sale inventory remains tight. This combination of factors continues to make it challenging for buyers to afford homes in today’s market.
Looking ahead, mortgage rates slightly decreased at the start of this week, but all eyes are now on the upcoming monthly consumer price index report set to be released on Wednesday. This report will provide another read on inflation, which will influence the Federal Reserve’s next move on interest rates. The expectations for a 0.3% increase in core prices month over month could have a significant impact on interest rates. A result that is higher or lower than expected could lead to a substantial rate jump or drop, potentially the largest in months.
Overall, while mortgage rates have decreased slightly, they are still significantly higher than they were a year ago. This, combined with tight inventory in the housing market, continues to make it difficult for many buyers to afford homes. Despite the slight increase in refinance applications, the overall level of refinance activity remains low. The upcoming consumer price index report will play a crucial role in determining the future direction of interest rates, which will further impact the affordability of housing in the coming months.
