Mortgage rates declined for the fourth-consecutive week, in what should be a positive for both homeowners and homebuyers. But the drop in rates has, so far, done little to spur sales.
The 30-year fixed rate mortgage dropped to 6.44% last week, its lowest level since April 2023 and down more than 80 basis points from a year ago, according to data from the Mortgage Bankers Association released Wednesday.
Demand for mortgages, however, has gone largely unchanged. Mortgage loan application volume increased just 0.5% on a seasonally adjusted basis from one week earlier. Similarly, purchase applications rose just 1% from the week before and were 9% lower than the same week a year ago.
“As observed in recent weeks, despite lower rates, purchase applications have not moved much,” said Joel Kan, Mortgage Bankers Association’s vice president and deputy chief economist. “Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”
Active home listings reached more than 884,000 in July — the highest level since June 2020, Realtor.com data shows. But new listings hit their lowest level in a year last month, and existing home sales were the lowest on record, a sign that buyers are still hesitating despite relatively favorable conditions.
“When rates finally dropped, buyers got excited and we saw more activity,” Nicole Stewart, a Redfin real estate agent in Boise, said in a statement. “But now that rates have fallen to the mid-6%-range, people have been waiting to see if they’ll drop even more. Home prices are going up, though, so it really becomes six of one, half dozen of the other.”
Median sale prices hit $439,455 in July, a 4.1% year-over-year increase, according to Redfin.
There are some early signs that the “lock-in” effect, which describes homeowners who choose to stay in their homes to hold onto their lower mortgage rates when they otherwise might have considered a move, is beginning to ease.
But there is still a ways to go in the mortgage rate department before Americans feel comfortable giving up their current rates. Just 2% of homeowners surveyed by Bankrate in June said they would purchase a home this year at a mortgage rate of 6% or higher.
One area that has seen strong yearly growth is in refinancing, where current homeowners replace an existing mortgage with a new one. Although refinance activity fell 0.1% last week from the week prior, it was still 85% higher than the same week a year ago. Much of the mortgage-sector activity of late has been driven by refinancing, which made up 46.6% of total mortgage applications last week, according to the Mortgage Bankers Association.