Mortgage rates saw the biggest one-week drop in over a year last week, causing the first increase in mortgage demand in a month.
Total mortgage application volume rose 2.5% last week, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.61% from 7.86%, with points decreasing to 0.69 from 0.73 (including the origination fee) for loans with a 20% down payment.
“Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market,” said Joel Kan, MBA’s vice president and deputy chief economist.
Applications to refinance a home loan increased 2% for the week and were 7% lower than the same week one year ago. Mortgage rates are pretty close to where they were at this time last year, so there is not a lot of incentive to refinance. Most homeowners refinanced two years ago when rates were hovering near record lows. The vast majority of current homeowners carry mortgages with rates below 4%.
Applications for a mortgage to purchase a home rose 3% for the week but were 20% lower than the same week a year ago. The decrease in interest rates is still not enough to offset sky-high home prices, which are still rising due to the very low supply of homes for sale.
Mortgage rates started the week slightly higher, but this week holds fewer economic events or reports that would influence rates. Last week’s combination of the Federal Reserve’s pause on interest rates and a lower-than-expected monthly employment report was the perfect storm for the dramatic move lower in rates.
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