Mortgage demand decreased sharply last week, despite additional reductions in interest rates.

Despite another decline in interest rates, mortgage demand fell last week after a robust start to the year.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume declined 9% last week compared to the prior week.

For 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less, the average contract interest rate fell to 6.19% from 6.20%, with points falling to 0.65 from 0.69 (including the origination charge) for loans with a 20% down payment. The rate was 3.78% the previous week.

Even with rates considerably below their recent highs, refinancing applications declined 7% for the week and were 80% lower than in the same period a year ago. Homeowners may have re-entered the market briefly after the Christmas slump, prompting demand to climb for much of January, but there are still relatively few borrowers who can benefit from a refinance at today’s rates, thus demand is currently declining.

Mortgage applications for house purchases declined 10% week on week and were 41% lower year on year. While both home prices and mortgage rates are continuously declining, the quantity of available homes for sale remains fairly low, which may be putting mortgage demand under pressure.

“Purchase activity is projected to go up as the spring homebuying season begins,” said Joel Kan, an MBA economist. “Both trends will assist some buyers in reclaiming purchasing power.”

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Mortgage rates have been moving in a limited range in recent days, but that could alter depending on comments expected from Federal Reserve Chairman Jerome Powell on Wednesday. The central bank is likely to boost interest rates, but this does not necessarily mean that mortgage rates would rise. The monthly employment report due out on Friday might potentially have a significant impact on rates, depending on what it says about the status of the economy, recession, and inflation.

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“There are also numerous major economic releases that could cause traders to change their estimate of the Fed’s likely course of action,” Matthew Graham, chief operating officer of Mortgage News Daily, pointed out. “In other words, even after the Fed-induced volatility has subsided, traders may discover new motivations to buy/sell bonds at an even faster pace, generating more fluctuation in rates for better or worse.”

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