The recent decline in mortgage rates is luring buyers back into the market, data on mortgage applications indicated Wednesday.
Applications for home loans increased three percent last week compared with the previous week, the Mortgage Bankers Association said.
Applications for loans to purchase homes rose four percent last week. Refinancing applications rose two percent.
The average contract interest rate on a 30-year fixed-rate mortgage with a conforming loan balance—meaning, $726,000 or less—fell from 7.61 percent to 7.41 percent.
Most homeowners have rates far below those currently available on the market, which makes them reluctant to refinance or sell their home. This has depressed the quantity of homes for sale and held down home sales. On Tuesday, the National Association of Realtors said that existing home sales had fallen to the slowest pace in 13 years.
Despite the weekly increases, loan applications are still far below where they were last year. Purchase applications are down 20 percent and refinance applications are four percent lower.
A year ago, rates were around three-quarters of a percentage point—or 75 basis points—lower than they are today. Two years ago, average rates were around half of what they are today.
Mortgage rates tend to follow the 10-year Treasury yield, which is based on market expectations of inflation and short-term rates over the coming years. The Fed declined to raise interest rates at its last meeting and many market participants believe that the Fed is done hiking rates. The swaps market implies that investors expect the Fed will cut rates midway through next year, if not earlier. The yield on 10-year Treasuries has fallen from close to five percent a month ago to 4.371 percent today.
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