Mortgage Applications Drop as Home Buyers Struggle with Low Inventory

The Numbers

U.S. mortgage applications have seen a decline recently as home buyers continue to face challenges due to low inventory, which has overshadowed the impact of falling rates.

According to the Mortgage Bankers Association (MBA), mortgage rates are relatively lower, but they have failed to stimulate home-buying and refinancing demand in the past few weeks. The overall market composite index, which measures mortgage application volume, has decreased over the last two weeks.

For the week ending December 29, the market index fell by 9.4% to 173.5 compared to two weeks earlier. In the same period last year, the index stood at 184.5.

Key Details

Despite the relatively lower rates in the past six months, both home-buying and refinancing activities have declined.

Buyer demand has decreased as potential buyers struggle to find available homes for sale. The purchase index, which measures mortgage applications for the purchase of a home, has fallen by 5% compared to two weeks ago.

Similarly, refinancing activity has also experienced a drop as homeowners have chosen to postpone it.

For the week ending December 29, the average contract rate for a 30-year mortgage on homes sold for $726,200 or less was 6.76%, slightly up from 6.71% in the previous week.

In the case of jumbo loans, which are 30-year mortgages for homes sold for over $726,200, the average contract rate was 6.86%, a slight increase from 6.85% in the previous week. Mortgage Rates Update

The average rate for a 30-year mortgage backed by the Federal Housing Administration saw a slight increase, rising to 6.51% from 6.5%. Meanwhile, the rate for a 15-year mortgage fell from 6.41% to 6.26% compared to the previous week.

For adjustable-rate mortgages, there was a decrease in rates from 6.26% to 5.71% since the last week.

The Housing Market's Recovery

Despite the decline in mortgage rates, the housing market's recovery is being hindered by the limited number of homes available for sale. As most of the listings come from the resale market, the market remains stagnant until homeowners, benefiting from low rates, decide to sell their properties.

Insights from MBA

Joel Kan, Vice President and Deputy Chief Economist at the MBA, stated that the mortgage rates are staying close to the lowest levels since mid-2023 due to the impact of slowing inflation and potential rate cuts from the Federal Reserve. However, he highlighted that even though there is some optimism in the housing market for the year 2024, purchase applications have not yet increased significantly, showing a 12% decrease compared to the previous year.

Market Response

In early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) fell below 4%.