The sharp decline in mortgage rates does not stimulate demand

A house for sale in the Mission Hills neighborhood of Los Angeles on Tuesday, October 19. December 11, 2022 in Mission Hills, California.

Brian Van Der Brug | Los Angeles Times | Getty Images

Mortgage application volume rose 2.7% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment has been made for the Veterans Day holiday.

The small increase follows a government report last week showing inflation may be starting to ease. That, in turn, caused bond yields and mortgage rates to plunge with them. Thursday saw the biggest one-day drop in the average 30-year fixed-rate mortgage rate since daily record-keeping began in 2009.

On a weekly average, the rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) fell from 7.14% to 6.9%, with points dropping from 0.77 to 0 .56 (including origination fees) for loans with a 20% down payment.

On a daily basis, the rate on Thursday alone fell 60 basis points, according to a separate Mortgage News Daily survey.

Home loan refinance applications fell 2% for the week and were 88% lower than the same week a year ago. The rate cut came toward the end of the week, and Friday was a federal holiday, Veterans Day, so refinance demand may not have fully responded to the rate cut yet.

Mortgage applications for buying a home, which typically don’t react quickly to changes in interest rates, rose 4% for the week and were 46% lower than the same week ago one year old.

“Purchase inquiries have increased for all loan types, and the average purchase loan has fallen to its smallest amount since January 2021,” said Joel Kan, an economist at the Mortgage Bankers Association.

Loan sizes may also decline due to falling house prices or the possibility of more first-time buyers returning to the entry-level market.

Mortgage rates didn’t move much at the start of the week, but U.S. yield 10-year cash flow fell on Tuesday, the first morning after a monthly reading on U.S. producer prices rose at a slightly slower pace than expected.

They fell later, hitting a nearly six-week low, after news broke that missiles had struck Poland, killing two people. This raised fears of heightened political risk in the already war-torn region. Mortgage rates roughly track the 10-year Treasury yield.

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