The US mortgage market has seen significant growth in recent weeks as stress in the banking system leads investors to look for alternative investment options, with lower yields and mortgage rates emerging as the favorable choice. This surge in activity has been further fueled by a decline in average contract interest rate, which now sits at 6.45%, down from 6.48%.
Increase in U.S. Mortgage Refinancing Activity
The mortgage-related data of last week, released by the Mortgage Bankers Association (MBA) shows that refinancing activity increased by 4.8%, bringing it to its highest level since September 2022. Homebuyers responded to lower rates with a fourth straight increase in purchase applications, which rose by 2%. According to MBA’s weekly index of overall home loan application volumes, there was a 2.9% increase in mortgage demand compared to the previous week.
Majority of Homeowners Have Mortgages with Interest Rates Lower Than Current
Despite the increase in refinancing activity, there is a lack of incentive for homeowners to refinance their mortgages, as the majority of homeowners have mortgages with interest rates lower than current levels. This explains why refinancing home loan applications increased by only 5%, however, that is still an achievement considering it was 61% lower compared to last year’s figures.
Homeprice Growth Slows Down; Purchasing Power Increases
In parts of the country, home price growth rate has slowed down, leading to an improvement in buyers’ purchasing power. This change was also reflected by a decline in mortgage rates for some types of mortgages over the last seven days.
Uncertainty around Further Fed Interest Rates Influencing Market Volatility
The Federal Reserve’s rapid interest rate increases over the past year have broadsided the housing market, but sales of new and existing homes have climbed in February. However, uncertainty still lingers over how much further the Fed will raise interest rates after Silicon Valley Bank and Signature Bank both failed within days of each other at the beginning of March.
Mortgage Rate Trends in the US
Despite a slight dip in mortgage rates, they are still high and are likely to contract only slightly in 2023, according to experts. To obtain a loan, homebuyers are advised to focus on obtaining the best rates possible by improving their credit score and saving for a down payment. The best mortgage term depends on one’s current financial situation.
Overall, there is a lot of volatility in the US mortgage market due to inflation and changes in the macroeconomic environment. Nonetheless, investors’ movement towards the bond market has been tremendously beneficial for the US mortgage industry.
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