Demand for mortgages has fallen for a month straight, despite mortgage interest rates retreating from their previous highs. This drop in mortgage applications is attributed to a number of factors, including interest rates still being significantly higher than they were in previous years, as well as a continuing lack of available inventory for purchase. Refinancing applications also remain low, due in no small part to high interest rates making refinancing an unappealing option.
Interest Rates Decline, But Not Enough to Spur Demand
Interest rates fell from 6.91% to 6.81% during the first week of June for 30-year fixed rate mortgages with conforming loan balances. While this is a substantial decline in mortgage interest rates, this still puts current interest rates more than a full percentage point above where they were at this time last year, and more than twice what they were two years ago. As a result, the decline in interest rates has failed to spur increased demand for mortgage applications.
Inventory Remains Low, But Homebuilders Are Optimistic
Another factor keeping mortgage applications low is a persistent lack of available homes for purchase. This is partly due to a lack of new homes being built, as well as a lack of current homeowners looking to sell their current properties. That being said, some homebuilders foresee an increase in construction contracts for new homes, which should help to alleviate the pressure on the market from a lack of available inventory.
Refinancing Applications Remain Low
Refinancing is also dramatically lower than it was even a year ago, in part due to high interest rates. Homeowners typically seek to refinance their properties when interest rates are more favorable than they were when they first took out their loans. However, due to how high current interest rates are, few existing homeowners would benefit from refinancing, especially compared to rates from this time last year.
The Near Future of the Market
In the near term, the real estate market is likely to remain relatively slow, thanks to all the factors above. However, if interest rates continue to drop and inventory becomes more available due to increased homebuilding, it is likely that demand for mortgage applications will once again begin to rise. In the meantime, buyers will need to contend with a limited number of available homes being offered at high interest rates, which will likely keep demand depressed.
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