Mortgage demand drops for the third straight week, even as interest rates ease

Mortgage application volume decreased by 3.9% last week despite a slight drop in the average 30-year fixed-rate mortgage to 6.92%, according to the Mortgage Bankers Association. Refinance applications declined 4% for the week, though they are up 42% year-over-year, while purchase applications fell 4% but are 18% higher than the same week last year, indicating a sluggish spring season despite increased housing supply; the market awaits the upcoming employment report for potential movement.

Analysis

A marginal decrease in 30-year fixed-rate mortgage rates to 6.92% from 6.98% last week failed to stimulate borrowing activity, as total mortgage application volume fell 3.9% week-over-week according to the Mortgage Bankers Association. This decline was observed across segments, with refinance applications, typically most responsive to rate changes, falling 4% weekly; although they remained 42% higher year-over-year, a period when rates were only 15 basis points higher, the Mortgage Bankers Association noted the overall average refinance loan size was the smallest since July 2024, suggesting potential borrowers are holding out for larger rate drops. Purchase mortgage applications also decreased by 4% week-over-week, despite being 18% higher than the corresponding week last year. The housing market's spring season is characterized as sluggish, with closed sales lagging behind the previous year even as current mortgage demand registers higher annually. While an increase in housing supply, now at a five-year high, is the primary factor behind higher year-over-year purchase demand, actual sales volumes are not reflecting this increased inventory, indicating that sales should be stronger. Market participants are now looking towards Friday's monthly employment report for potential catalysts that could shift the current narrow range of mortgage rate movements observed over the past two months.

Key Decisions for Investors

• Investors should monitor for more substantial mortgage rate declines, as current minor adjustments are proving insufficient to significantly boost overall mortgage demand, particularly refinance activity, with borrowers awaiting more favorable conditions.
• Given sluggish sales despite a five-year high in housing supply and higher year-over-year purchase application volumes, investors should scrutinize a_b_s_o_r_p_t_i_o_n rates and affordability metrics, as the market may require stronger economic signals or deeper rate cuts to translate increased inventory into higher sales.
• The upcoming monthly employment report on Friday is a critical data point, holding the potential to significantly influence mortgage rate trends and, consequently, housing market activity and investor sentiment regarding the sector.