A key measure of home-purchase applications surged at the start of the new year despite a slight uptick in mortgage rates.
The Mortgage Bankers Association's (MBA's) index of mortgage applications rose 9.9% for the week ended Jan. 5, compared with one week earlier, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan started the year at 6.81%. While that is down from a peak of 8% in October, it is slightly higher than it was the previous week.
"Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday," said Joel Kan, MBA's deputy chief economist.
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Housing demand stirred back to life after dropping at the end of December, even with the recent rise in rates. Applications for a mortgage to purchase a home climbed 6% from one week earlier. Application volume is down 16% compared with the same time last year.
Demand for refinancing also moved higher last week, jumping 19% from the previous two weeks, according to the survey. Compared with the same time last year, refinance applications are up about 30%.
"The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines," Kan said. "Mortgage rates and applications have been volatile in recent weeks and overall activity remains low."
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The interest rate-sensitive housing market cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 consecutive times over the past two years in an attempt to crush stubborn inflation and slow the economy.
However, many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.
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Higher rates have not only dampened consumer demand over the past year, but also severely limited 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.
Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
