Weekly mortgage demand drops as buyers struggle to find affordable homes

After rising for several weeks, mortgage demand fell last week as buyers faced increased competition for a limited supply of homes.

Total mortgage application volume fell 7.2% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Buyer demand was behind the drop, offsetting a slight increase in refinance demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) remained unchanged at 6.78%, with points increasing to 0.65 from 0.63 (including the origination fee) for loans with a 20% down payment.

Applications for a mortgage to purchase a home fell 11% last week from the previous week and were 20% lower than the same week a year ago.

“Low existing housing supply is limiting options for prospective buyers and is keeping home-price growth elevated, resulting in a one-two punch that continues to constrain home purchase activity,” said Joel Kan, an MBA economist.

The average loan size for purchase applications has risen for several weeks, hitting $444,100 last week, the largest since May 2022. Lower mortgage rates are putting more pressure on home prices, and are bringing more buyers into the market, increasing competition.

Applications to refinance a home loan increased 2% for the week and were 3% higher than the same week one year ago. There are still very few current homeowners who have loans with interest rates higher than today’s rates, but interest rates are a full percentage point lower than they were in October, so there are some who can benefit.

Mortgage rates have barely moved in the last two weeks, but that could soon change. The Federal Reserve meets today, and while it is not expected to announce any change in its interest rate now, there is always the opportunity for news.

“If the Fed is to have an impact on mortgage rates [Wednesday], it would only be due to the market’s interpretation of comments pertaining to the future,” noted Matthew Graham, chief operating officer at Mortgage News Daily.

Friday’s monthly employment report could also impact markets and swing mortgage rates in either direction depending on what it says about the broader economy.