Recent data from the Mortgage Bankers Association has indicated a significant uptick in mortgage applications, correlating with a decline in the 30-year fixed mortgage rate for conforming loan balances, which has reached its lowest point since September 2022. During the week ending last Friday, the market composite index, which gauges the volume of loan applications, experienced a remarkable increase of 14% on a seasonally adjusted basis, marking the fourth consecutive week of growth.
In raw numbers, the index surged by an impressive 26% week-over-week. Joel Kan, the association's deputy chief economist, noted, "Application activity was up significantly last week, as market expectations of a rate cut from the Federal Reserve pulled mortgage rates lower." According to Kan, the current 30-year fixed mortgage rate stands at 6.15%, over a full percentage point lower than it was a year prior. The anticipation surrounding the Federal Open Market Committee's potential announcement of a 50 basis-point interest rate cut on Wednesday afternoon is reflected in market behavior, with the odds of such an announcement estimated at 57%.
The remainder of the probability skews towards a more modest 25 basis-point reduction, as per insights from the CME FedWatch Tool. Highlighting the refinancing trend, the refinance index exhibited a robust 24% increase on a weekly basis and soared 127% higher compared to the same period last year. Both conventional and government-backed refinancing activities have reached their most vigorous pace since 2022.
Kan commented that the refinance share of mortgage activity has risen notably to 51.2% last week, up from the preceding week's 46.7%. Additionally, the seasonally adjusted purchase index experienced a sequential rise of 5%. Without seasonal adjustments, the index saw a 15% uptick from the previous week, although it reflected a slight year-over-year decline of 0.4%.
Kan remarked, "Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth,” indicating a potentially favorable outlook for prospective buyers. Focusing on interest rates, the average rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased significantly, falling from 6.29% over the course of the week.
For loans exceeding this amount, the rate saw a modest decline to 6.41%, down from 6.56%. In the case of 15-year loans, borrowers are now facing rates that slipped to 5.42%, down from 5.71%. Moreover, fixed-rate mortgages with 30-year terms that are backed by the Federal Housing Administration (FHA) also witnessed a decline, with rates dropping to 6.12% from 6.24%.
This influx of FHA loans, which typically cater to first-time home buyers and often come with lower down payment requirements, nudged the share of total applications to 15.2%, an increase from 14.7% the prior week. These developments collectively underscore a dynamic shift within the mortgage landscape, presenting both opportunities and challenges for buyers and investors alike..