A key measure of home-purchase applications rose to the highest level in five weeks as consumer demand roared back to life amid a recent drop in mortgage rates.
The Mortgage Bankers Association's (MBA) index of mortgage applications rose 2.8% last week, compared with the previous week, according to new data published Wednesday. It marked the second straight week of gains.
The data also showed that the average rate on the popular 30-year loan held steady at 7.61% — a notable drop from just three weeks ago, when rates hovered around 7.91%.
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The decline in rates helped to spur more housing demand, with applications for a mortgage to purchase a home also rising 3% for the week. Still, application volume remains down 12% compared with the same time last year.
Demand for refinancing also inched higher last week, rising 2% from the previous week, according to the survey. Compared with the same time last year, refinance applications are up 7% from the same time one year ago.
"Both purchase and refinance applications increased to the highest weekly pace in five weeks but remain at very low levels," said Joel Kan, MBA deputy chief economist. "Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective homebuyers and current homeowners."
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The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers have lifted the benchmark federal funds rate 11 consecutive times since March 2021 in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their policy-setting meeting in November that another rate hike is on the table this year — and that rates are likely to remain elevated for some time. But many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.
The higher mortgage rates are not only dampening consumer demand, but they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
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A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in September, compared with the same time a year ago.
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.
