Homebuyers were not enticed by lower mortgage rates last week, and the drop was not enough to boost refinances either.
Total mortgage application volume fell 4.1 percent seasonally adjusted for the week ending October 21st, compared to the previous week, according to the Mortgage Bankers Association (MBA).
A drop in consumer confidence may be behind some of the weakness in housing right now. Fannie Mae recently reported a significant decrease in the share of Americans who think now is a good time to buy a home. Other, more general measures of confidence are also lower this month. Mortgage application volume to purchase a home fell 7 percent to the lowest level since January of this year. It is still 9 percent above last year, but annual numbers may be skewed due to new mortgage rules that went into effect last October.
Mortgage rates have moved in a very narrow range throughout most of the year, so the drop last week was unlikely to make a difference to buyers who are facing bigger price gains and very few choices for homes to buy. Rates have sat below 4 percent for most of the year for both conforming and jumbo loans.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.71 percent from 3.73 percent last week, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
"Rates edged lower last week following remarks from European Central Bank President Mario Draghi that the ECB would carry on with its asset purchases for at least the next few months," said Joel Kan, an MBA economist.
Applications to refinance a home loan, which are more rate-sensitive, also fell, down 2 percent for the week, despite the lower rates. So many borrowers have already refinanced to very low rates that it may take a bigger move lower to bring them to the table again. Those who have higher rates likely have other reasons why they would not qualify for a refinance.
Mortgage bankers predict refinance volume will drop dramatically next year, when rates are expected to head higher. The MBA released its 2017 forecast at its annual convention in Boston this week, saying that purchase applications would rise 11 percent but refinance volume would drop 40 percent. That would reduce total mortgage originations by 14 percent compared to this year, when the refinance market was very hot.
"Strong household formation coupled with further job growth, rising wages, and continuing home price appreciation will drive strong growth in purchase originations in the coming years," wrote MBA's chief economist Michael Fratantoni in a release.
The only thing holding back home sales right now is housing supply. The numbers continue to drop in some of the most in-demand markets, pushing prices to new highs. Nationally, home prices are now just 0.1 percent lower than the peak of the last housing boom, according to the CoreLogic S&P/Case Shiller home price indices. Weakening affordability is sidelining some buyers, especially first-time buyers who have been most absent from the housing recovery.