Overview
According to the Mortgage Bankers Association (MBA), U.S. mortgage applications have witnessed a decrease as home buyers struggle to navigate a market characterized by limited housing inventory and escalating prices. The market composite index, which serves as a gauge of mortgage application volume, experienced a 7.2% reduction in the last week.
Key Details
Purchase Index
The purchase index, a metric used to measure mortgage applications for home purchases, noted a significant 7.2% drop compared to the previous week.
Refinance Index
Homeowners showed little interest in refinancing their mortgages, resulting in an 11.4% decline in the refinance index.
Average Contract Rates
For homes sold at $726,200 or less, the average contract rate for a 30-year mortgage remained steady at 6.78% for the week ending January 26.
Concerning jumbo loans (30-year mortgages for homes sold above $726,200), the average rate also remained unchanged from the previous week at 6.94%.
Meanwhile, the average rate for 30-year mortgages backed by the Federal Housing Administration witnessed an increase from 6.51% to 6.61%.
Other Mortgage Rates
- The 15-year mortgage rate rose slightly from 6.31% to 6.34% compared to the preceding week.
- Adjustable-rate mortgages experienced a modest increase, with rates climbing to 6.23% from the previous week’s 6.22%.
These figures reflect the current state of the U.S. mortgage market, demonstrating both the limited availability of affordable homes and the impact it has on potential buyers. As home prices continue to rise, concerns regarding housing supply persist, contributing to a decline in demand for mortgages and subsequent mortgage application volume.
The Challenges in Today’s Home Buyers’ Market
Home buyers in today’s market face three significant challenges: high rates, rising home prices, and increased competition for a limited number of home listings.
The Easing of High Rates
The first challenge, high rates, has been easing up recently. Rates have stayed below 7%, and a U.S. Federal Reserve meeting this week could lead to further rate declines.
The Impact on Home Prices
However, a decrease in rates could potentially push more buyers into the market, which would further drive up home prices. This comes at a time when the inventory of homes available for sale is lower than usual.
The Motivation to Sell
Unless homeowners have strong enough reasons to sell their current homes, the market will likely continue at its current pace. With mortgage rates as low as 2%, sellers may not feel compelled to put their homes on the market.
Insights from MBA
According to Joel Kan, vice president and deputy chief economist at the MBA, the limited existing housing supply is restricting options for prospective buyers and keeping home-price growth at elevated levels. This situation creates a one-two punch that continues to constrain home purchase activity. Additionally, the average loan size for purchase applications has increased in recent weeks to $444,100, marking the largest average loan size since May 2022.
Market Reaction
Early morning trading on Wednesday saw the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) surpass 4%.
In summary, home buyers are facing a tough landscape due to high rates, rising home prices, and increased competition for limited listings. While high rates are gradually easing, this could lead to further price increases if more buyers enter the market. Unless homeowners feel inclined to sell their homes despite low mortgage rates, the current state of the market may persist.
