Mortgage loans are witnessing improvement after a decline in mortgage rates, as loan applications rose last week due to lower mortgage rates making them more financially feasible. Despite a 19% increase, refinancing activity remains low by historical standards. The average 30-year mortgage rate fell to 7.07%, sharply down from late October when it was close to 8%, which is enough to prompt some borrowers to decide to take a loan.
Increase in Mortgage Loan Applications
Indicators measuring the volume of mortgage loans for purchase and refinancing rose last week following the drop in mortgage rates, according to the Mortgage Bankers Association announced on Wednesday. The refinancing index increased by 19%, reaching its highest level since July, while the purchase index rose by 4% to its highest level since August. This increase led to the average rates offered for 30-year mortgage loans declining to 7.07% from 7.17%, the lowest level since July.
Impact on Borrowers
The increase in activity suggests a significant number of potential borrowers are awaiting lower mortgage rates before taking out a home loan. Buyers’ desire for mortgage loans has been dampened by high mortgage rates, which reached a 23-year high in late October, record home prices, and a lack of inventory. In a survey conducted by the mortgage giant Fannie Mae in November, only 14% of consumers said it was a good time to buy a home, the lowest level in a monthly survey that began in 2010.
Impact of High Mortgage Rates
The rise in mortgage rates has made refinancing unattractive, especially for borrowers who secured standard mortgage rates during the COVID-19 pandemic. However, things are beginning to change due to declining inflation in the fall, raising the likelihood that the Federal Reserve may reverse its campaign of raising interest rates to combat inflation and begin lowering the federal funds rate as soon as possible, putting pressure on mortgage rates to decline.
Federal Reserve officials are scheduled to announce a decision on the policy interest rate on Wednesday, and they may highlight the possibility of reducing interest rates next year.
Source: https://www.investopedia.com/drop-in-mortgage-rates-breathes-a-little-life-into-home-loans-8415284
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