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After weeks of incremental increases, mortgage applications spiked last week as mortgage rates continue to drop ahead of the Federal Reserve’s anticipated interest rate cut.
The 30-year fixed mortgage rate fell to 6.15% last week — its lowest level since September 2022 and more than a full percentage point lower than a year ago, according to data from the Mortgage Bankers Association released Wednesday. The drop in rates sent total mortgage applications soaring 14.2% from one week earlier.
“Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower,” Joel Kan, vice president and deputy chief economist of the Mortgage Bankers Association, said in a statement.
Applications for mortgages to buy a home also jumped 5%, which Kan attributed to “improving affordability conditions, sparked by lower rates and slower home-price growth.”
There are early signs that the housing market is beginning to loosen up. New home sales in August jumped 14.6% to 776,000 from 677,000 in July, the fastest sales pace since February 2022, according to data from the Mortgage Bankers Association published Tuesday.
There were nearly 36% more homes for sale on a typical day in August compared with a year ago — the highest level since May 2020, Realtor.com (NWS-5.96%) found.
“With the combination of rates potentially lowering, and getting past the certainty that comes with consumers post-election, I think we will see some pent-up demand unlocked and some transitions of existing homeowners entering the market closing out the year,” Kendall Bonner, vice president of industry relations at real estate brokerage Xp Realty (EXPI+0.18%), told real estate firm Zoocasa.
The Federal Open Market Committee is expected to announce its first interest rate cut in over four years Wednesday. While it’s still not clear whether it will carry out a 25 or 50 basis-point cut, any reduction in interest rates is expected to drive mortgage rates lower and spur home buying activity.
“Housing is one of the most interest rate sensitive sectors of the economy, so when the Fed tightens rates, it’s always housing that bears a lot of the brunt,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, told Quartz last month. “As rates loosen, housing will be a beneficiary.”
Goolsbee said he hopes to begin to see progress on housing inflation over the next year. He warned, however, that the higher share of 30-year-fixed rate mortgages, as opposed to shorter-term contracts, will continue to make the effects of any improvements muted and slower coming.
For now, however, costs still appear to be too high to create significant movement in the market. The median sale price of a home was $433,229 in August, according to the most recent Redfin (RDFN-3.67%) data available. And in the second quarter of this year, the potential average monthly housing payment was approximately $3,500 — or 49% of the median U.S. income for the first-time buyer age group, according to estimates by NerdWallet (NRDS-18.24%).
“I think a lot of homeowners currently have tons of equity and are also sitting on very low interest rates,” Bonner said. “So unless the motive to move is very significant, there’s no reason to act until conditions are more favorable.”