Mortgage refinance demand increased by 5% following a slight decline in mortgage rates.

• The interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased from 7.29% to 7.18%.
• Despite being 6% lower than the previous year, the demand for refinancing increased by 5% during the week.
• The number of mortgage applications for purchasing a home increased by 2% during the week, but was still 17% lower compared to the same week last year.

Although mortgage rates have risen since the beginning of the year, they slightly decreased last week, causing a surge in demand, particularly for refinancing.

The interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased from 7.29% to 7.18%, while the points remained unchanged at 0.65 (including the origination fee) for loans with a 20% down payment.

According to Mike Fratantoni, MBA's senior vice president and chief economist, last week's decline in treasury and mortgage rates was due to the slowing job market, with wage growth at its slowest pace since 2021, and the Federal Reserve's plans to ease quantitative tightening in June and maintain its view that another rate hike is unlikely.

For the first time in three weeks, the rate for Federal Housing Administration loans dropped below 7%, providing a positive outlook for first-time buyers who frequently rely on FHA loans.

According to Fratantoni, roughly half of purchase loans are made to first-time homebuyers, and government lending programs are a significant source of financing for this group. The increase in FHA activity indicates that this market segment is active.

Although refinance demand increased by 5% for the week, it was still 6% lower than the year-earlier week, as rates are now 70 basis points higher than they were a year ago, making it difficult for borrowers to benefit from a refinance.

Despite a 2% increase in mortgage applications for purchasing homes during the week, they were still 17% lower than the same week a year ago. Home prices are continuing to rise, making affordability a challenge for potential buyers. With a tight supply of homes, competition remains high, making it difficult to find bargains.

This week, mortgage rates decreased even further. The upcoming release of the monthly consumer price index, which will be available next week, could cause rates to move significantly in either direction based on the information it provides about inflation.