Mortgage Applications Rise as Rates Fall. What It Means for the Housing Market.

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Mortgage applications were at their highest level since early August 2022.

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Mortgage applications continued to rise as rates dropped last week, a sign that some buyers have returned to the housing market. But it’s nowhere near the same numbers as last year.

The Mortgage Bankers Association’s index tracking refinance applications during the week ending Jan. 20 was 15% higher than the previous week, while its seasonally-adjusted purchase index gained 3%. The seasonally-adjusted purchase index was at its highest level since early August 2022, while the volume of refinance applications was at its greatest since September.

Seasonality and lower mortgage rates are among the forces driving the recent increase, says Joel Kan, the Mortgage Bankers Association’s deputy chief economist. As the housing market leaves its holiday slump behind, changes to mortgage rates, which have come down from their late 2022 highs, have created more breathing room for buyers entering the market.

At 6.2%, the average mortgage rate last week was the lowest since September 2022, Kan said. “The fact that rates have come down gives us a little bit of good news before spring home buying season really starts to kick in,” he says. “If that’s the case, then we might see more activity come back.”

The same can’t necessarily be said for refinance demand, which is more rate-sensitive than demand for a home purchase. “Rates are probably going to have to come down a lot more for refi to be worth it for most homeowners,” Kan says.

The recent increases don’t mean demand is high. The refinance index was 77% lower than the same week last year, while the purchase index was 39% lower.

Kan says the trade group foresees a recovery in the housing market relative to fourth-quarter lows—but that doesn’t mean it will be a busy year for homebuying. The trade group’s most recent forecast expects about 4.4 million existing-home sales this year, which would be the lowest annual total in about a decade.

“Any sort of recovery that we have in the first half of ’23, or even through the year, are not a boom by any means,” Kan says. “They just sort of get us out of the hole that we got in during the fourth quarter.”

Write to Shaina Mishkin at