Mortgage demand rises 7% as rates fall for the third week in a row, but buying activity remains ‘tepid’

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The numbers: As mortgage rates fall, homeowners are seizing the opportunity to refinance their mortgages. Mortgage demand rose seasonally adjusted 7% in the latest week.

Demand for both purchases and refinancing increased. That pushed the market composite index up, a measure of mortgage application volume, the Mortgage Bankers Association (MBA) said on Wednesday. 

The market index rose to 255.3 for the week ending Jan. 20, up 7% from a week earlier. A year ago, the index stood at 551.7.

Key details: The refinance index jumped 14.6%, but was down 77% compared to a year ago. 

The purchase index — which measures mortgage applications for the purchase of a home — rose by 3.4% from last week. 

The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 6.2% for the week ending January 20.

That’s down from 6.42% the week before, the MBA said. 

For homes sold for over $726,200, the average rate for the 30-year was 5.92%. 

The 15-year fell to 5.54%.

The rate for adjustable-rate mortgages rose to 5.44%.

The big picture: As mortgage rates fall, buyers are coming back into the market. Homeowners who had missed the boat on refinancing their mortgages are seizing the moment.

Yet the housing market is still in a slump, as the number of homes for sale on the market remains low. Affordability is still an issue since home prices are still high. 

The forthcoming spring selling season will tell us if homeowners sitting on their ultra-low mortgage rates will sell.

What are they saying? “Home buying activity remains tepid, but if rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market,” Joel Kan, vice president and deputy chief economist at the MBA, said. “Many have been waiting for affordability challenges to subside.” 

Market reaction: The yield on the 10-year Treasury note fell below 3.44% in early morning trading Wednesday.

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