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In tandem with a slight decline in mortgage interest rates, demand for loans has perked up, according to the latest Mortgage Bankers Association survey. The increase in mortgage applications represents a pivot from the declines seen over the past four weeks, though interest in refinancing remains muted.
For the week ending June 9, mortgage applications jumped 7.2% from the previous week’s total, the MBA reported on Wednesday, June 14.
Joel Kan, vice president and chief deputy economist at the MBA, notes that the rise in applications coincided with a small dip in 30-year mortgage rates. The average 30-year fixed-rate mortgage fell to 6.77% last week, from 6.81% the previous week.
“Rates that are still more than a percentage point higher than a year ago and low for-sale inventory continue to constrain homebuying activity in many markets,” Kan said in a news release announcing the survey results.
The MBA survey covers more than three-fourths of U.S. residential mortgage applications received by mortgage bankers, commercial banks and savings-and-loan associations.
Refinancing Activity Remains Behind Last Year’s Pace
Applications for mortgage refinance loans accounted for fewer than one-third (27.3%) of all mortgage applications last week, the MBA said, and remained more than 40% behind their year-ago level.
Kan said elevated interest rates have watered down mortgage refinancing benefits for many borrowers, including the desirability of cash-out refi loans.
In the MBA survey, the average rate on a 15-year fixed-rate mortgage—a popular loan choice for refinancing—was unchanged at 6.25% last week.
On 5/1 adjustable-rate mortgages, or ARMs—with rates that are fixed for five years and can then change annually—the typical rate slipped from 5.90% to 5.93%.
What’s the Outlook for Mortgages?
A continued cooling of inflation might offer hope for mortgage borrowers.
The U.S. Bureau of Labor Statistics reported June 13 that the inflation rate for the year ending in May was 4%. The bureau says that represented the smallest 12-month jump in prices since the spring of 2021.
If encouraging news on inflation keeps coming, that might prompt the Federal Reserve to slash its benchmark interest rate toward the end of 2023 or in early 2024, says Lawrence Yun, chief economist at the National Association of Realtors. That, in turn, would likely trigger lower mortgage rates and more mortgage applications.
“Of course, we know the mortgage rates have been near 7% recently, but the potential for a decline is real as we progress through the year,” Yun said in a statement.
The Fed’s recent series of 10 consecutive rate hikes has been aimed at taming inflation.
Michele Raneri, vice president and head of U.S. research and consulting at credit bureau TransUnion, says the Fed’s decision to pause interest rate hikes could stabilize mortgage rates and bring down monthly mortgage payments.
“However, it remains to be seen if, in the short term, this will spur many who have been holding off to finally engage in a new purchase or refinance, or if they will continue waiting until rates begin dropping,” Raneri said in a statement.
Movement in Government-Backed Mortgages Is Uneven
Two categories of federally backed mortgages saw an uptick in the share of overall applications during the week ending June 9, while activity in one category slipped, the MBA says. On a week-over-week basis, the share of:
- VA applications inched up from 12.5% to 12.6%
- USDA applications grew from 0.4% to 0.5%.
- FHA applications fell from 13.2% to 13%.
Government-backed mortgages tend to offer lower interest rates and better approval odds than other mortgages do.
