Despite a slight decrease in mortgage interest rates last week, prospective homebuyers are still hesitant to make a move. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances dropped to 6.82% from the previous 6.87%. While this is the lowest level seen since February of this year, it seems that the drop is not significant enough to spur action among buyers. In fact, applications for mortgage loans to purchase a home decreased by 4% last week compared to the week prior, according to the Mortgage Bankers Association’s seasonally adjusted index. This has resulted in purchase demand being 15% lower than it was at the same time last year.
Waiting Game for Lower Interest Rates
One of the leading reasons for the lack of activity in the housing market can be attributed to ongoing affordability challenges. Interest rates may be at relatively low levels, but home-price appreciation continues to be robust in many markets. As a result, buyers are waiting for rates to drop even further before committing to a purchase. There is anticipation that the Federal Reserve will cut its rate in September, which could potentially drive mortgage rates down. According to MBA economist Joel Kan, “Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets.”
Refinancing Activity Shows Signs of Improvement
While applications for purchasing a home have declined, there has been a slight uptick in refinancing activity. Refinance applications were essentially flat last week, increasing by just 0.3% compared to the previous week. However, demand for refinancing is still 38% higher than it was at the same time last year, although it is coming off a very low base. It is worth noting that rates for refinancing today are slightly lower than they were a year ago. According to Kan, “Refinance applications were up, driven by conventional and FHA application activity, as some borrowers took the opportunity to act.”
While there have been some fluctuations in mortgage interest rates recently, it seems that many potential homebuyers are still struggling to navigate the current housing market. Affordability remains a significant concern, and buyers are likely waiting for further decreases in interest rates before making a move. On the other hand, refinancing activity has shown signs of improvement, indicating that current homeowners are taking advantage of the lower rates. It will be interesting to see how the housing market evolves in the coming months as interest rates continue to be a driving force behind buying and refinancing decisions.