The mortgage landscape in the United States is experiencing a significant shift as the contract rate on a 30-year fixed mortgage recently hit a four-month low, standing at 7.17% in the week ending December 1. This notable decline of 20 basis points marks the most substantial drop in five weeks since late 2008, demonstrating a trend that is capturing the attention of homeowners, prospective buyers, and industry experts alike.
Current Mortgage Rates and Trends
According to the Mortgage Bankers Association (MBA), the mortgage rate decline has been consistent over the past five weeks, totaling 69 basis points. Mortgage News Daily, providing more frequent updates, reported the 30-year fixed mortgage rate at 7.08% on Tuesday, underscoring the downward trend.
The dip in mortgage rates is attributed to expectations that the Federal Reserve has concluded its interest rate hikes and may even consider cutting them early next year. After reaching a peak near 8% in October, the retreat in mortgage rates is anticipated to stimulate housing inventory and sales.
Impact on Refinancing and Application Activity
Refinancing activity surged by nearly 14%, marking the most significant increase since February. This surge has contributed to an overall boost in MBA's index of applications. While purchasing activity experienced a slight decrease, it still remains near the highest level since mid-September.
The MBA survey, a staple since 1990, draws on responses from mortgage bankers, commercial banks, and thrifts, covering more than 75% of all retail residential mortgage applications in the US.
Joel Kan, MBA’s Vice President and Deputy Chief Economist, noted that the decline in mortgage rates is linked to slower inflation and market expectations regarding the potential end of the Fed's hiking cycle. This bodes well for homeowners and potential buyers, as the lower rates alleviate the financial burden associated with moving.
Refinance Applications and Purchase Index
According to MBA, refinance applications saw the strongest week in two months and increased on a year-over-year basis for the second consecutive week, a positive sign suggesting that 2023 might have marked the low point in this cycle for refinance activity. Purchase applications, on the other hand, remained 17% lower than a year ago, impacted by low inventory and ongoing affordability challenges.
Additional Insights from MBA’s Weekly Mortgage Application Survey
Several key insights emerge from MBA's Weekly Mortgage Application Survey:
- The average size of all loans and those for home purchases each fell by more than $15,000 last week. The overall loan size of $345,900 is the smallest since the first week of 2022. The average purchase loan amount was $396,500.
- The FHA share of total applications increased to 15.0%, and the VA share rose to 12.8%. USDA loan applications accounted for 0.5% of the week’s total.
- Various mortgage rates witnessed changes, with the 7.17% rate for conforming 30-year fixed-rate mortgages representing a 20-basis point decline. Jumbo 30-year FRM, FHA-backed 30-year FRM, and Fifteen-year FRM rates also experienced shifts.
- The ARM share of activity decreased to 7.4% of total applications, a 3 percentage point drop over the previous month.
As the mortgage landscape continues to evolve, these developments signal potential opportunities for homeowners considering refinancing and prospective buyers navigating the current real estate market.