Mortgage Rates Continue to Fall for the Sixth Straight Week

Mortgage rates have declined for the sixth consecutive week, but despite these declines, mortgage demand remains subdued, suggesting that buyers may be awaiting a larger drop in rates before committing. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.29% from 6.43% in the past week, according to the Mortgage Bankers Association. This marks the lowest rate since February 2023 and nearly a full percentage point lower than the same week one year ago.

• The decrease in rates is attributed to falling Treasury yields, which are influenced by recent economic data indicating cooling inflation, a slowing job market, and the anticipated first rate cut from the Federal Reserve later this month.

Limited Mortgage Demand Despite Falling Rates

Despite the falling rates, the overall mortgage demand only increased by a modest 1.4% for the week, according to the MBA's seasonally adjusted index, including adjustments for the Labor Day holiday.

• Refinance applications saw a 1% week-over-week increase but were 106% higher than a year ago. However, this substantial increase is attributed to historically low refinance numbers in the previous year, making even a significant gain seem small in comparison.
• Many borrowers currently hold sub-5% rates, limiting the potential for refinancing, despite the recent declines in rates.

Mortgage Applications for Home Purchase: A Mixed Picture

Applications for a mortgage to purchase a home rose 2% for the week but were 3% lower than the same week one year ago.

• While falling rates may be a positive sign, affordability challenges, limited inventory, and other factors are still hindering purchase decisions.

Inflation and the Federal Reserve's Impact on Mortgage Rates

The monthly release of the Consumer Price Index (CPI), a key indicator of inflation, on Wednesday could significantly influence the direction of mortgage rates. While rates have continued to decline this week, according to Mortgage News Daily, the CPI report's impact could be more pronounced due to its release during the blackout period leading up to the Fed's rate cut, with the size of the cut still under debate.

Impact of Treasury Yields on Mortgage Rates

The recent decline in mortgage rates is linked to the movement in Treasury yields, which have been responding to data suggesting a cooling inflation and slowing job market.

Refinance Activity Remains Low

While refinance applications have seen an increase compared to the previous year, the overall volume remains historically low, primarily because many borrowers currently have sub-5% rates, limiting the appeal of refinancing.

Challenges to Home Purchase Despite Falling Mortgage Rates

Despite the recent decrease in mortgage rates, several factors continue to affect home purchase decisions, including affordability challenges and limited inventory.