Mortgage Rates Fall to 5-Month Low. Buyers Hold Out for More Drops, but Homeowners Are Refinancing.

The numbers: Applications for mortgages fell despite the 30-year rate falling for the third week in a row, as home buyers sat on the sidelines.

The 30-year fell to the lowest rate since February, but was still high enough to keep home buyers away.

Buyers are also grappling with record-high home prices, which together with rates strain how much they can afford.

Worsening affordability prompted the market composite index—a measure of mortgage application volume—to fall in the past week, according to the Mortgage Bankers Association (MBA) on Wednesday.

The market index fell 2.2% to 209.3 for the week ending July 19 from a week ago. A year ago, the index stood at 206.9.

Key details: The purchase index—which measures mortgage applications for the purchase of a home—fell 4% from a week prior.

The refinance index rose 0.3%. The increase was driven by homeowners with conventional and Federal Housing Administration mortgages refinancing, the MBA said.

The average contract rate for the 30-year mortgage for homes sold for $766,550 or less was 6.82% for the week ending July 19. That’s down from 6.87% the week before.

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $766,550, was 7.09%, up from 7.07% a week previously.

The average rate for a 30-year mortgage backed by the Federal Housing Administration was 6.71%, down from 6.75% a week before.

The 15-year was down to 6.21% from 6.49% the previous week.

The rate for adjustable-rate mortgages was down to 6.19% from 6.33%.

The big picture: The housing market is thawing, but it’s not warm enough for buyers to dip their toes in just yet.

There are more home listings on the market, and mortgage rates are falling, yet home prices continue to hit a new record highs. That’s giving prospective buyers reason to hold off on purchasing homes.

Some home buyers are also waiting for rates to drop further. They could be “simply waiting for mortgage rates to come down after the Federal Reserve cuts rates, most likely in September,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement.

“With inflation cooling and the job market still solid, rate cuts are now almost a foregone conclusion, which means those buyers who can wait are doing so,” she added.

Homeowners looking to move might be waiting for even longer. In a separate survey by Bankrate, 47% of homeowners said rates would need to fall below 5% for them to feel comfortable enough to purchase a new home this year.

What the MBA said: “Refinance applications were up … as some borrowers took the opportunity to act,” Joel Kan, deputy chief economist and vice president of the MBA, said in a statement. “The conventional refi index was at its highest level since September 2022.”

“Purchase applications decreased as ongoing affordability challenges persist, with rates at their current levels and with home-price appreciation still strong in many markets,” he added.

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