US purchase-mortgage applications fall 7% despite lower rates

US mortgage applications to buy a home fell 7% last week and were 18% below a year earlier, even as mortgage rates declined for the first time in two months.^[1]

The average contract rate on 30-year fixed-rate mortgages within standard loan-size limits fell to 7.41% from 7.50%; these loans keep the same interest rate over their 30-year term.^[1] Applications measure borrowers seeking financing, not completed home sales.^[1]

For the same loan amount and term, a lower rate reduces monthly payments, but this 0.09-percentage-point decline has not yet coincided with a rebound in purchase applications. If applications remain weak, mortgage lenders could have fewer loans to originate, brokers fewer transactions to close, and homebuilders more reason to offer buyer incentives; one week, however, cannot establish that lower rates will fail to lift demand later.^[1]

Long-term market rates remain an important backdrop to mortgage costs. The US 10-year Treasury yield stood at 5.13% on October 21, slightly above 5.12% the previous session but below 5.19% on October 14. Mortgage rates do not move in lockstep with Treasury yields, but persistently high long-term yields could limit further relief in home financing costs.

Impact

What to watch next

• September new-home sales, due October 27, will test whether weak demand also appears in builders’ sales, although the reporting month predates this drop in mortgage applications.
• The October 28 MBA 30-year mortgage-rate update will show whether this week’s modest decline continues, testing the prospect of further borrowing-cost relief for buyers.