Mortgage rates fell slightly last week after the chairman of the Federal Reserve suggested a potential end to a historic string of interest rate hikes. The drop wasn’t substantial, but it was enough to boost demand from current homeowners hoping to refinance their mortgages to lower rates.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased last week to 6.48% from 6.50% in the previous week, with points declining to 0.61 from 0.63 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association’s weekly survey. The rate was 5.53% for the same week one year ago. Mortgage rates for all surveyed loan types decreased over the week.
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As a result, applications to refinance a home loan jumped 10% last week, compared with the previous week, seasonally adjusted. Refinance demand, however, was still 44% lower year over year.
“Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth,” wrote Joel Kan, MBA’s deputy chief economist, in a release.
Applications for a mortgage to purchase a home increased 5% for the week, but were 32% lower than the same week a year ago. Rates haven’t really dropped enough to offset high home prices. Prices have been cooling since last summer, but are already reheating this spring due to strong demand and very low supply.
Mortgage rates rose sharply to start this week, according to a separate survey from Mortgage News Daily. The increase was due to investor sentiment that the regional banking crisis may be easing. All bets are off Wednesday, however, when the government releases the consumer price index, a monthly report on inflation. Any large divergence from expectations, in either direction, could move bond yields, and consequently mortgage rates, decisively.