According to recent data from the Mortgage Bankers Association (MBA), mortgage demand is seemingly continuing to slow even despite easing mortgage rates.
Indeed, the MBA’s index of mortgage applications dropped 9.4% in the week ended Dec. 29 compared with just two weeks prior. This is despite the 30-year ending the year at 6.76%, well below its peak 8% level dating back to October.
“Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023,” said Joel Kan, MBA Deputy Chief Economist.
Interestingly, applications to refinance a home loan ended the year up 15% from a year prior, while applications for a mortgage to purchase a home came out 12% lower.
With mortgage rates back to the 6% range, the question on most economists’ minds is how easing mortgage rates will effect the balance of supply and demand in the country. Indeed, it’s unclear whether falling mortgage rates will be enough to spur sellers back into the market, while an influx of buyers is bound to continue raising home prices.
“The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response,” Kan told Fox Business. “Refinance applications were still at very low levels, but were 15% higher than a year ago.”
Mortgage Demand Slows as Rates Fall
Hopeful homebuyers are still stuck in something of a tough spot. There’s limited supply of available homes for sale in the U.S. while mortgage rates are just low enough to increase the competition for the homes that are listed on the market.
That said, there may be help on the way. With the Federal Reserve hinting at three or more rate cuts coming this year, there should be a rebalancing in the housing space. This is in no small part due to increased home builder confidence, which will further help ease the pinched supply of homes.
“The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months in come,” Kan said.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
