The number of applications for home mortgages dropped last week to the lowest level since mid-July, dampened by a decline in refinancing activity and, to a lesser extent, reduced purchase applications, according to the Mortgage Bankers Association (MBA).
Total mortgage application volume fell 1.9 percent last week from the week prior, according to MBA’s composite index that tracks mortgage originations. The drop reflects a 2.8 percent week-over-week decline in applications to refinance existing loans and a 0.2 percent decline in mortgage applications to buy a home.
“Refinance volume has been moderating, while purchase volume continues to be lower than expected given the lack of homes on the market,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in the report.
The average interest rate for the benchmark 30-year mortgage remained unchanged at 3.03 percent last week, according to the MBA, with Fratantoni saying that continued economic recovery could push rates higher.
“Economic data has sent mixed signals, with slower job growth but a further drop in the unemployment rate in August. We expect that further improvements will lead to a tapering of Fed MBS purchases by the end of the year, which should put some upward pressure on mortgage rates,” Fratantoni added.
While the Federal Reserve’s decisions don’t drive mortgage rates as directly as they do savings accounts and CD rates, there’s an indirect impact via the central bank’s effect on the Treasury market, chiefly on the 10-year Treasury yield, which mortgage rates track closely.
The Fed has been buying around $120 billion in monthly Treasury and mortgage securities since the onset of the pandemic, a measure that, in addition to near-zero interest rates, was meant to help the economy recover from the COVID-19 recession. While economic output has fully bounced back to pre-pandemic levels, the labor market recovery is trailing behind.
