Mortgage rates are significantly higher than they were at the start of this year, but they pulled back slightly last week after several weeks of straight increases. That was enough to spark some new demand, especially for refinances.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.18% from 7.29%, with points unchanged at 0.65 (including the origination fee) for loans with a 20% down payment.
“Treasury rates and mortgage rates fell last week on the news of a slowing job market, with wage growth at the slowest pace since 2021, and the Federal Reserve‘s announced plans to ease quantitative tightening in June and to maintain its view that another rate hike is unlikely,” said Mike Fratantoni, MBA’s senior vice president and chief economist.
The rate for Federal Housing Administration loans fell below 7% for the first time in three weeks, which is a welcome sign for first-time buyers, who tend to use FHA loans.
“First-time homebuyers account for roughly half of purchase loans, and the government lending programs are an important source of financing for these homebuyers. The gain in FHA activity is a sign that this segment of the market is active,” Fratantoni added.
The dip in rates caused refinance demand to increase 5% for the week, although it was still 6% lower than the year-earlier week. Rates are 70 basis points higher than they were a year ago, so there are very few borrowers who can benefit from a refinance. A basis point is one-hundredth of a percentage point.
Applications for a mortgage to purchase a home rose 2% for the week but were still 17% lower than the same week a year earlier. Affordability is hitting potential buyers hard, as home prices continue to climb. Tight supply is keeping the competition high, resulting in very few bargains.
Mortgage rates fell further to start this week. The next big piece of economic data comes next week, with the release of the monthly consumer price index. That could move rates sharply in either direction, depending on what it says about inflation.