Mortgage demand falls despite a decline in rates

The 30-year fixed mortgage rate declined slightly last week, the first rate drop in three weeks, but it wasn’t enough to boost mortgage demand.

Mortgage applications fell last week by 1.2% on a seasonally adjusted basis compared to one week earlier, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. 

The 30-year fixed rate decreased five basis points to 6.5% last week, which is still 114 basis points higher than a year ago, Joel Kan, MBA’s vice president and deputy chief economist, said. 

According to the survey, the seasonally adjusted purchase index decreased 2% from one week earlier. The refinance index, on the other hand, increased 1% from the previous week — but was down by 51% from the same week one year ago.

The Federal Housing Administration (FHA) share of total applications decreased to 12.5% last week from 12.6% the week prior. The U.S. Department of Veterans Affairs (VA) share, however, rose to 11.3% from 11.2% one week prior. The U.S. Department of Agriculture (USDA) share also climbed marginally to 0.5%, up from 0.4% the previous week. 

The MBA survey shows the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.50% last week from 6.55% the prior week. Rates on jumbo loans (greater than $726,200) decreased to 6.37% from 6.40% on a weekly basis.

“The jumbo-conforming spread continues to narrow, an indication that there is reduced lender appetite for jumbo loans following the recent turmoil in the banking sector and heightened concerns about liquidity. The spread was 13 basis points last week, after being as wide as 64 basis points in November 2022,” Kan said.

Following JPMorgan Chase Bank ‘s acquisition of First Republic Bank, there are expectations that the existing hole in jumbo lending will widen, Jamie Dimon, the CEO of JPMorgan, indicated in a call with analysts on Monday. 

“Making very large cheap mortgage loans will not happen going forward,” he said, noting that Chase won’t be following First Republic’s jumbo-lending model. 

Despite the First Republic Bank failure, which resulted in the second-largest bank failure in US history, the Federal Reserve is still expected to raise rates by 25 basis points on Wednesday. An additional quarter-percentage point increase would lift the benchmark federal funds rate to 5 to 5.25% — a 16-year high.