A key measure of home-purchase applications surged last week as mortgage rates dipped below 7% for the first time in more than a month.
The Mortgage Bankers Association's (MBA) index of mortgage applications jumped 7.1% for the week ended March 8, compared with a 9.7% increase the previous week, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan dropped to 6.87% last week.
"Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months," said Mike Fratantoni, MBA's chief economist.
MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU
Housing demand had ground to a halt earlier this year as rates moved higher, but it is stirring back to life as rates start to fall. Applications for a mortgage to purchase a home rose 5% from the previous week. Application volume is down 11% compared with the same time last year.
Demand for refinancing also climbed higher last week, rising 12% from the previous week, according to the survey. Compared with the same time last year, refinance applications are up 5%.
"While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years," Fratantoni said.
WHY ARE GROCERIES STILL SO EXPENSIVE?
The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve's aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation and slow the economy.
Central bank officials have opened the door to cutting interest rates this year but indicated they will not do so until they are confident that inflation is conquered.
"The committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," Fed Chair Jerome Powell said last week while testifying on Capitol Hill.
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Now, most economists expect the cuts to begin in June amid signs that inflation remains abnormally high.
Higher mortgage rates have not only weighed on consumer demand, they have limited inventory. That is because sellers who locked in a low mortgage rate before the COVID-19 pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
Available home supply remains down a stunning 34.3% from the typical amount before the pandemic began in early 2020, according to a separate report published by Realtor.com.
