Falling Mortgage Rates Fail to Spark Buyer Interest as Applications Plunge

Workers construct new homes in a development in Loveland, Colo., on June 25, 2024. David Zalubowski/AP Photo

Falling mortgage rates failed to entice potential homebuyers last week as mortgage applications and refinancing activity both fell by double-digit percentages, possibly signaling that buyers are becoming more selective as inventory rises.

The latest data from the Mortgage Bankers Association (MBA), released on Aug. 21, show that mortgage applications fell by 10.1 percent for the week ended Aug. 16 from one week earlier, while refinancing activity plunged by 15 percent. Purchasing activity fell by 5 percent from the prior week.

The declines came despite the fact that mortgage rates on the benchmark 30-year fixed fell for the third consecutive week, to 6.5 percent, the lowest since May 2023.

The retreat in last week’s mortgage activity followed a week in which refinancing volumes soared by 34.5 percent and mortgage originations jumped by 16.8 percent, with the MBA suggesting that part of the latest swing in the opposite directions is a natural correction after recent market volatility.

“Both mortgage rates and mortgage applications have now stabilized after a few weeks of financial market volatility, which led to a quick drop in mortgage rates,” Joe Kan, MBA vice president and deputy chief economist, said in a statement.

Mortgage rates hit their lowest level in more than a year during the week of Aug. 8, as weak labor market data drove strong risk-off sentiment in financial markets, with investors dumping stocks and seeking refuge in the safety of bonds. The disappointing jobs report on Aug. 2 sent yields on the 10-year Treasury note, which are closely tied to mortgage rates, to their lowest since December 2023. This, in turn, drove the rates on the two most popular mortgages—the 15- and 30-year fixed—to their lowest levels in more than a year (5.89 percent and 6.4 percent, respectively) for a brief period.

Rates ticked up afterward, although on a weekly basis they’ve fallen for the past three weeks straight, to 6.5 percent last week, the lowest since May 2023, according to the MBA.

Purchase applications fell last week to their lowest level since February 2024, according to Kan, who saw it as a sign that potential homebuyers are becoming more picky.

“Home sales have slowed despite rising inventory levels,” he said. “Even with lower mortgage rates, potential buyers might be more selective now that there are more options.”

Another factor keeping potential buyers on the sidelines could be high prices and the fact that even though mortgage rates have drifted lower, they remain relatively high.

Data released on Aug. 13 by the National Association of Realtors (NAR) show that the median price of a single-family existing home in the United States grew by 4.9 percent over the past year, to $422,100.

“It’s terrific news for homeowners who are moving ahead in wealth gains,” NAR chief economist Lawrence Yun said in a statement. “However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”

Among 48 percent of America’s housing markets, families needed a qualifying income of at least $100,000 to afford a 10 percent down payment mortgage, according to the NAR.

Even though the NAR predicted that housing affordability would improve in the coming months as more supply reaches the market, recent data on new housing construction suggests relief could be limited.

Construction of new homes in the United States fell for the third consecutive month in July, to its lowest level in more than four years, according to recent Commerce Department data, setting up the recent trend of rising inventory for a potential reversal down the road.

Still, a recent survey of U.S. homebuilders showed that sales expectations six months ahead ticked up, possibly as markets anticipate that the Federal Reserve will cut rates.

The uptick in future sales expectations was offset by a decline in present sales conditions, as 33 percent of builders cut prices to boost home sales in August, the highest share of discounted homes so far this year.

Overall builder confidence slumped to its lowest point of the year in August, as borrowing costs remain elevated amid the current high-interest rate environment.