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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.20 percent last week from 4.30 percent the week before. Continued volatility in the U.S. and overseas financial markets at the start of this week pushed that average rate to 4 percent for most lenders Tuesday, but some were offering as low as 3.875 percent to their highest credit-worthy borrowers, according to Mortgage News Daily.
Lower rates, however, did nothing to spur mortgage activity among potential home buyers. Mortgage applications to purchase a home actually fell one percent, on a seasonally adjusted basis, from the previous week. They are now 4 percent lower than they were the same week one year ago, according to the MBA.
"Purchase application volume continues to run behind last year's level, but to a lesser degree. We continue to expect that the strengthening job market should lead to an increase in purchase activity next year," added Fratantoni.
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Refinances are taking a growing share of total application volume, 59 percent in this report – up from 56 percent the previous week, the highest share since February of this year. However, some of the nation's largest banks that reported quarterly earnings Tuesday noted significant drops in mortgage originations, due to weaker refinance volume as a whole. That is, in part, because the banks themselves are still limiting their refinances to customers who pose very little risk. The current surge could be short-lived, if rates turn even slightly higher again, as the pool of borrowers who could benefit from a refinance is small, given still tight lending standards.
"I will say that with all the volatility in the economy, the rates are not dropping as quickly as we would like them to be, but we are certainly looking at a sustained pace of lower interest rates," said Melissa Cohn, President of GuardHill Financial Corporation on CNBC's Street Signs. "If you can lock in a rate in the 3 percent range, you're doing yourself a huge favor."