Mortgage loans refinancing declined for the week ending March 22, contributing to a drop in home loans applications even as interest rates decelerated, data from the Mortgage Bankers Association (MBA) showed on Wednesday.
The Refinance Index fell 2 percent from the prior week and was 9 percent lower compared to a year ago. Overall, mortgage applications dropped by 0.7 percent at a time when the 30-year fixed rate mortgage ticked down to 6.93 percent from the prior week's 6.97 percent.
"Mortgage application activity was muted last week despite slightly lower mortgage rates. The 30-year fixed rate edged lower to 6.93 percent, but that was not enough to stimulate borrower demand," Joel Kan, MBA's vice president and deputy chief economist, said in a statement shared with Newsweek.
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The drop in refinancing applications comes as the housing market has been in flux nationwide.
Borrowing costs for home loans jumped to their highest since the turn of the century last year, peaking at about 8 percent in the fall. That jump in mortgage rates was sparked by the Federal Reserve hiking rates to their highest in more than two decades as policymakers moved to tighten financial conditions to battle soaring inflation. Expectations that the central bank will start lowering those rates has helped bring mortgage rates down.
Recent data suggests that buyers are still looking for lower borrowing costs. New home sales declined in February, amid high mortgage rates that economists say depressed activity as the housing market enters its busy Spring season.
Kan said on Wednesday that still elevated mortgage rates are still keeping buyers on the sidelines.
"Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market," he noted.
Kan suggest limited housing inventory is also proving to be a hindrance to the market.
"Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6-percent by the end of the year," he said. "Similarly, with rates remaining elevated, there is very little incentive right now for rate/term refinances."
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The lock-in effect was particularly acute in the existing homes market. Most homeowners have low mortgage rates which has discouraged them from putting their properties in the market if that means they may have to acquire a new home with borrowing costs closer to 7 percent. About 90 percent of homeowners own mortgages that are under 6 percent, according to real estate platform Redfin.
There have been some signs recently that the existing homes market is recovering after struggling mightily last year.
In February, sales of previously owned homes rose by nearly 10 percent.
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