Home Sweet Home? U.S. Mortgage Demand Isn’t Changing Much Even Though Mortgage Rates Are Falling Again
Key takeaways
- 30-year fixed-rate mortgages with conforming loan balances fell for a third straight week
- However, refinancing applications dipped 2% and mortgage applications to buy a home only increased 2%
- The housing market has slumped as buyers and sellers try to guess what will happen next with the Fed and inflation
The U.S. housing market is in a pretty weird position right now. Even though the good news of the Fed deciding to hold interest rates in June happened and has filtered through into mortgage rates falling for three weeks in a row, mortgage demand has remained flat. We’ve got the details below.
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What’s happening in the U.S. market?
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) fell to 6.73%, down from 6.77%. It was the third weekly decrease thanks to the Fed holding steady with interest rates for the first time in nearly a year.
However, mortgage applications aren’t picking up just yet. Mortgage refinancing applications dropped by 2% compared to the previous week and are 40% lower than the same time last year.
Mortgage applications to buy a home increased by 2% from the week before, indicating that would-be buyers are getting used to higher interest rates. Another factor is very low levels of housing inventory keeping would-be buyers on the sidelines.
Could mortgage demand pick up again?
Mortgage rates are still considerably higher than they were just 12 months ago, so there’s little incentive for change.
That being said, the housing market isn’t necessarily cyclical: people are driven to sell because they’re expanding a family or getting a new job in a different area. Then there are those who are watching the rates closely to see if the drop is enough for them to take the plunge.
Right now, buyers and sellers are waiting out the market, but that could change and open the floodgates to new inventory in the housing market if rates continue to drop. That seems unlikely in the short term, given the Fed has indicated two more rate hikes are on the horizon this year to tackle inflation.
The bottom line
The housing market is slow as buyers and sellers hold out for better rates, but it appears with a small uptick in mortgage applications for new homes that we’re seeing a psychological acceptance of higher mortgage rates. It’s doubtful that it will rapidly pick up, given the Fed’s hawkish outlook for the rest of the year.
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