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It may be a greater supply of homes for sale. It may be price cuts on those homes. Whatever the reason, buyers are coming back to the market, and driving mortgage demand.
Total mortgage application volume increased 5.5 percent last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. The week's results also include an adjustment for the Thanksgiving holiday. Overall volume was still 16 percent lower than a year ago.
Mortgage applications to purchase a home drove the volume, rising 9 percent for the week and 2 percent from a year ago. Purchase volume had been trending lower on an annual basis for several weeks, as home sales weakened. Sales of existing and newly built homes have been falling as rising interest rates and already high prices pushed affordability to the lowest level in a decade.
"The rise in purchase activity was led by conventional purchase applications, which surged almost 12 percent, while government purchases were essentially unchanged over the week," said Mike Fratantoni, chief economist for the MBA. "This also pushed the average loan size for purchase applications higher, which likely meant there were fewer first-time homebuyers in the market last week."
Fratantoni also pointed to a small drop in mortgage rates, but weekly rate moves tend to affect refinance demand more than buyer demand because buying a home is a more lengthy and complicated process.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 5.12 percent from 5.16 percent, with points decreasing to 0.46 from 0.48 (including the origination fee) for loans with a 20 percent down payment.
Refinance demand responded, rising 1 percent from the previous week. Refinance volume was still 35 percent lower than the same week one year ago, when interest rates were nearly a full percentage point lower. Most borrowers today have already refinanced at rock-bottom rates, and those who are refinancing are largely doing so to pull cash out of their homes.
Home values have risen dramatically over the past few years, giving millions of borrowers much more equity to draw upon. The gains in home values, however, have been shrinking for several months, and that may be giving more buyers incentive to get into the market again. Last year, competition for the few homes that were for sale was fierce, and bidding wars were the norm. That is no longer the case.