Mortgage rates fall for first time in 2 months, but demand falls

Demand for mortgages fell further, despite a brief respite in rising interest rates.

Total mortgage application volume fell 5.3% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less fell last week to 7.41% from 7.50%, with points falling to 0.75 from 0.83, including origination fees for loans with a 20% down payment.

“Mortgage rates fell for the first time in more than two months,” MBA economist Joel Kan said in a statement. “However, the rate cut was not enough to boost application activity as purchase and refinance applications continued to decline.”

Home loan refinancing applications, which are most sensitive to weekly changes, fell only 2% week over week, a smaller decline than in some previous weeks when rates were rising. Refinancing demand was still 59% lower than the same week a year ago. With rates now a full percentage point higher than a year ago, there are a very small number of borrowers who can qualify for refinancing.

Mortgage applications for home purchases fell a sharper 7% for the week and were 18% lower than a year earlier. Buyers react less to the weekly change in rates than to their overall higher level. A report from the National Association of Realtors released Tuesday showed a sharp decline in September pending home sales. These are measured by contracts signed, which shows the real-time impact of rising rates during the month. Rates remained at this higher level in October.

For in-market buyers, a still-high share opts for adjustable-rate mortgages, or ARMs, which offer lower rates but are considered riskier because they will eventually reset to the market rate at the end of their term.

“The ARM share remained steady at 10.5 percent as ARM rates remained nearly a percentage point lower than the 30-year fixed rate, providing qualified borrowers a lower rate option to purchase a home,” Kan added.

Mortgage rates haven’t done much to start with this week, according to a separate investigation from Mortgage News Daily. Last week was particularly volatile for rates, due to several monthly inflation reports. This week, the movements seemed to follow oil prices.

“But we advise you not to overemphasize the oil price correlation,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “It’s been very unreliable for over a month.”

Correction: The National Association of Realtors on Tuesday reported pending home sales in September. An earlier version had incorrectly stated the day.