U.S. mortgage rates in January fell to their lowest level in four months, prompting a spike in demand among homebuyers.
Mortgage loan applications rose roughly 28% from the week prior, according to seasonally adjusted data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 13, 2023.
“Mortgage application activity rebounded strongly in the first full week of January, with both refinance and purchase activity increasing by double-digit percentages compared to last week,” Mortgage Bankers Association Chief Economist and Senior Vice President Mike Fratantoni said in a statement.
The Refinance Index and the Purchase Index also saw increases from the previous week, rising by 34% and 25%, respectively. Despite these gains, Fratantoni says that “refinance activity remains more than 80% below last year’s pace and purchase volume remains 35% below year-ago levels.”
In this environment, demand for housing has stagnated, with fewer homeowners willing to refinance their mortgages.
Given the Federal Reserve’s record-setting pace of rate hikes in 2022, many homebuyers and homebuilders are opting to wait until the high-inflation and high-interest rate environment in the U.S. settles down and consolidates.
The average contract interest rate for a 30-year fixed-rate mortgage with conforming loan balances ($726,200 or less) decreased to 6.23% from 6.42% the week prior. Meanwhile, the average contract interest rate for 15-year fixed-rate mortgages decreased to 5.58% from 5.94%, according to the MBA’s weekly survey.
Still, with mortgage rates at their lowest level since September 2022, some would-be homebuyers are finally dipping their toes back into the market.
“As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers,” explained Fratantoni.
In addition to January’s data revealing an increased demand for mortgage applications, the data also show a rise in home builder confidence, according to The National Association of Home Builders (NAHB). In January, the NAHB reported that “a modest drop in interest rates spurred an end to the 12-month downtrend in builder confidence levels.”
“In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability,” NAHB Chief Economist Robert Dietz said.
The MBA’s weekly survey covers over 75% of all U.S. residential mortgage applications and has been conducted weekly since 1990. According to the MBA, respondents to the survey typically include mortgage bankers, and commercial banks, among others.
When I bought my house in 1992, the interest rate that I was charged was 81/2%.
I would like to see how people would react to that this day!