Mortgage Applications Rise as Home Loan Rates Hit 19-Month Low

Low home loan rates have led to a rise in mortgage applications, providing a much-needed boost to the housing market. The Mortgage Bankers Association (MBA) reported a 1.4 percent increase in overall mortgage-application volume, with a 2 percent rise in home-purchase applications, signaling a positive trend for potential homebuyers. The average 30-year fixed rate mortgage fell to 6.29 percent, a level not seen since February 2023, and the sixth consecutive week of declines. This drop in mortgage rates can be attributed to declining U.S. Treasury yields, influenced by cooling inflation data and expectations for an interest-rate cut by the Federal Reserve.

Joel Kan, the vice president and deputy chief economist at the MBA, emphasized the impact of declining Treasury yields on mortgage rates, stating that “Treasury yields have been responding to data showing a picture of cooling inflation, a slowing job market, and the anticipated first rate cut from the Federal Reserve later this month.” This favorable interest-rate environment has also led to a significant increase in refinancing activity, with a 1 percent rise last week and a 106 percent increase compared to the same week last year. However, despite the surge in refinancing, it still remains below pre-pandemic levels when mortgage rates were significantly lower.

Looking ahead, mortgage rates are expected to continue their downward trajectory. According to the Mortgage News Daily rate index, the average 30-year fixed rate mortgage fell to 6.11 percent on September 11. This decline can be attributed to the falling yields on the 10-year Treasury note, which serves as a benchmark for long-term interest rates. The 10-year yield has seen steady declines since reaching a peak of around 4.7 percent in April, resulting in reduced borrowing costs for homebuyers.

While low mortgage rates are encouraging, other factors continue to challenge the housing market. Affordability remains a concern, with limited inventory and elevated home prices hindering purchase decisions. The National Association of Realtors (NAR) reported a slight 1.3 percent increase in existing-home sales in July, breaking a four-month sales decline. However, sales remain down by 2.5 percent compared to the previous year, and inventory remains tight, with only a 0.8 percent increase from the previous month. NAR chief economist Lawrence Yun highlighted the sluggish nature of the housing market, citing elevated home prices as a possible deterrent. The median existing-home price rose by 4.2 percent year over year in July, reaching $422,600.

In conclusion, the recent drop in mortgage rates has led to an increase in mortgage applications and refinancing activity. However, challenges such as limited inventory and affordability concerns continue to impact the housing market. While the decline in mortgage rates is a positive development for potential homebuyers, it is important to monitor the overall health of the housing market and address the underlying factors affecting its growth.