Mortgage rates fall, but purchase demand remains weak

U.S. 30-year fixed mortgage rates fell for the first time in two months, with the Freddie Mac weekly average declining to 7.32% for the week ending Oct. 22, according to Realtor.com.

Rates and drivers

The weekly average followed seven consecutive increases and a week in which it held at 7.4%. Rates averaged 6.19% one year earlier.

The flight toward government bonds helped pull the 10-year Treasury yield down to an average of roughly 5.13%, compared with 5.24% during the previous week. Investors sought safety in government bonds as stock and technology markets cooled and a pullback in housing starts added to inflation fears. They were also following the conflict in Iran and awaiting initial unemployment claims data.

Freddie Mac chief economist Sam Khater said the decline offered some relief to prospective homebuyers. Housing data also moved lower: U.S. Census Bureau figures released on Tuesday showed September housing starts falling 5.2% from the previous month and 7.4% from a year earlier.

The key figures were:

The Freddie Mac average rate for a 30-year fixed loan reached 7.32% for the week ending Oct. 22.
Purchase mortgage applications fell 7% for the week and 18% from a year earlier.
Refinance applications fell 2% for the week and 59% from a year earlier.

The two headline rates measure different segments. The Mortgage Bankers Association series covers 30-year fixed-rate mortgages with conforming balances of $832,750 or less and a 20% down payment. Its point figure fell to 0.75 from 0.83, including the origination fee.

Demand remains weak

Total mortgage application volume fell 5.3% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase applications declined more sharply than refinancings, while the annual decline in refinance activity reflected the limited pool of borrowers able to benefit from rates more than a full percentage point above the previous year.

Joel Kan, an MBA economist, said lower rates were insufficient to boost application activity because both purchase and refinance applications continued to decline. Rates remained at their higher October level, which CNBC said buyers were reacting to more than the latest weekly move.

Pending home sales dropped to their lowest level on record, according to the National Association of Realtors. Realtor.com data also showed contract signings down 9.8% from a year earlier.

"the damage to the fall housing market is already done" — Jake Krimmel, senior economist at Realtor.com

The decline in rates did not reverse the broader market movement. Rates had climbed from 6.66% in late August to 7.4% on Oct. 8, reducing buyers’ purchasing power by 7.2%. Krimmel said this week’s modest decrease did not materially alter that rise.

Inventory and pricing

The number of homes for sale increased 7.7% from a year earlier, the highest weekly growth rate since late January. Inventory growth had accelerated from roughly 4% in late August to nearly 8%.

The median asking price held steady at $415,000 week to week. Realtor.com’s Market Clock recorded a national reading of 4 o’clock, describing a late balanced market trending toward buyers, with about two-thirds of its top 100 metropolitan areas either favoring buyers or moving in that direction.

Financing choices

Adjustable-rate mortgages represented 10.5% of applications. Their rates were almost a full percentage point below the 30-year fixed rate, although these loans are considered riskier because they eventually reset to the market rate at the end of their term.

Mortgage News Daily reported that rates had moved little at the start of the week and appeared to be following oil prices. Chief operating officer Matthew Graham cautioned against placing too much emphasis on that relationship, describing it as highly unreliable for more than a month.

For readers comparing U.S. purchases, the site’s Mortgage Calculator for Property Abroad and Buyer Advisory for Property Abroad provide resources for reviewing financing scenarios.

The next dated step is next week’s meeting of the Federal Open Market Committee. CME FedWatch pricing indicated an 85% chance of a hold at the current 3.75%-4% range, up from 66% a week earlier and 42% a month earlier, while December rate-hike odds remained near 90%.