When mortgage purchase activity shot up 25 percent in early January, some industry leaders hailed it as a turning point for home sales.
For the week ending Jan. 27, applications for mortgages to buy homes dropped a seasonally adjusted 10 percent from week before, the Mortgage Bankers Association reported. Homeowner requests to refinance fell 7 percent, the MBA’s weekly survey found.
The drops came even as mortgage rates were flat. The average contract interest rate for a 30-year, fixed-rate mortgage with conforming loan balances — $726,200 or below — was 6.19 percent, a smidge below the 6.20 percent from a week earlier.
Buyers are still benefiting from mortgage rates that are nearly a full percentage point below their 7.16 percent peak at the end of October. Rates are down 40 basis points in the past month alone and have dropped for four consecutive weeks.
Last year, a run-up in mortgage rates and a drop in home listings stunted sales, leading to massive layoffs in the mortgage industry.
The specter of interest rate hikes still looms large, as the Federal Reserve raised rates by a quarter point on Wednesday and is probably not done fighting inflation. But the discrepancy between Treasury yields and mortgage rates is narrowing, which could help prospective buyers.
“The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022,” MBA deputy chief economist Joel Kan said in a statement. “Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months.”
Kan also predicted purchase activity would pick up as winter gives way to spring.
The Veterans Administration’s share of total mortgage applications decreased to 11.9 percent from 13 percent, while the USDA’s share remained at 0.6 percent. The FHA share increased slightly to 12 percent from 11.9 percent.
The average contract interest rate for a 30-year, fixed-rate jumbo loan increased slightly to 5.99 percent. The average contract interest rate for a 15-year, fixed-rate mortgage decreased to 5.50 percent.