By Anna Bahney, CNN
Washington, DC (CNN) — Mortgage applications surged by 9.9% in the first week of the year, a sign that lower rates are bringing homebuyers off the sidelines, according to a report released Wednesday by the Mortgage Bankers Association.
Applications soared in the week ending January 5 from a week earlier, on a seasonally adjusted basis, with additional adjustments made to account for the New Year’s holiday.
The jump was a promising sign for the housing market this year, and an indication that falling rates are bringing more buyers back to the market as the cost of financing a home drops. Home affordability in the fall of 2023 was the worst in a generation. As mortgage rates drop, affordability improves — even if the price of homes remains elevated.
Mortgage rates have been steadily trending down since hitting their highest level of the year of 7.79% at the end of October, according to Freddie Mac.
Given the Federal Reserve’s indication that it plans to cut its benchmark rates in the coming year, analysts and economists expect mortgage rates to continue to drop in 2024, but not go below 6%.
The average mortgage rate for a 30-year, fixed loan stands at 6.62%, more than a percentage point lower than at the end of October, according to Freddie Mac. And that rate ticked up slightly at the start of January. The latest weekly mortgage rate figures are due on Thursday.
Purchase applications to buy a home were up 6% from the week before, although still 16% lower than a year ago.
Even applications to refinance an existing loan climbed, rising 19% from the week before and were up 30% from a year ago. Refinances fell off a cliff last year as rates climbed too high to make it possible for most homeowners to lower their monthly payments since over 90% of current mortgage holders have interest rates 6% or under.
But while this increase, after adjusting for the holiday, is promising, the big jump included a bit of a holiday effect, said Joel Kan, MBA’s vice president and deputy chief economist in a statement. He said the increase was, “likely due to some catch-up in activity after the holiday season and year-end rate declines.”
Some lenders may have had a backlog of applications following time off when their offices were closed during the holiday.
“Mortgage rates and applications have been volatile in recent weeks and overall activity remains low,” said Kan.
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