As of last week, mortgage interest rates saw a slight decrease, with the average contract rate for 30-year fixed-rate mortgages dropping to 6.82%. Despite this decrease, potential homebuyers are still hesitant to make a move, as purchase applications dropped by 4% compared to the previous week. The Mortgage Bankers Association reported that purchase demand is now 15% lower than it was a year ago, indicating ongoing affordability challenges.
Homebuyers are facing affordability challenges due to current interest rates and strong home-price appreciation in many markets. Analysts predict that homebuyers are likely waiting for interest rates to drop even further, with expectations that the Federal Reserve will cut its rate in September. While mortgage rates are not directly linked to the Fed, they are influenced by market sentiment and inflation trends. Analyst Ivy Zelman suggests that a 100 basis point drop in mortgage rates would provide the market with more momentum.
Refinancing activity saw a slight increase of 0.3% for the week, with demand 38% higher than the same week last year. However, this increase comes off an extremely low level, and mortgage rates are only slightly lower than they were at this time last year. Conventional and FHA refinancing activities were the driving force behind the increase, with the conventional refi index reaching its highest level since September 2022.
Overall Market Outlook
Despite the slight decrease in mortgage interest rates, potential homebuyers are still cautious about entering the market due to affordability challenges. The expectation of a rate cut by the Federal Reserve in September may prompt more activity, but analysts suggest that a significant drop in mortgage rates is needed to drive substantial momentum in the housing market. Refinancing activity has increased, but it remains to be seen whether this trend will continue in the coming weeks.