Mortgage Applications Climb as Rates Dip

Once again, the average interest rate on a 30-year fixed mortgage has fallen. Down to 6.28%, it is now its lowest level since September. The drop follows an underwhelming consumer price index report for November, which is a significant factor in measuring inflation. More importantly, the dip caused a frenzy among investors trying to stem any potential damage by shifting to US Treasury Bonds. This sent yields plummeting; when 10-year Treasury yields fall, mortgage rates tend to follow.

This is good news, as home sales have declined for much of the year after mortgage rates started to rise. When they accelerated in the Spring and the Summer, the 30-year fixed rate quickly increased from 3% to 7%. The rapid increase put the market to sleep earlier than it usually would. Year-over-year, home sales have declined for nine consecutive months and by as much as 24% in October.

Fortunately, the October CPI report hinted that inflation is cooling and that helped rates to fall sharply in November. However, the month ended with the 30-year fixed mortgage rate registering at 6.63%. This, of course, led many to believe potential buyers may finally start to show interest again.

Indeed, this now appears to be the case, as home purchase mortgage applications jumped 4% since the week prior. But, of course, rates are still 38% lower than the same week the year prior. That said, mortgage refinances applications grew last week by 3%, though they were still 85% lower than last year.

The lower mortgage rates negatively impacted one thing: the demand for adjustable-rate mortgages. Indeed, the total number of applications for ARMs fell by 7.7% last week, nearly half the 13% in October. ARMs can offer lower rates but tend to carry higher risk as they eventually adjust to the market rate and the end of their terms.

Since rates are lower, it should not be surprising that average mortgage loan amounts rose from $352,000 last week to $364,000 this week. This has also increased the average purchase loan size from $387,000 to $401,400.