US mortgage rates have fallen below 7% for the first time since March, leading to a surge in financing applications for home purchases. This decline in rates is seen as a potential catalyst for revitalizing the housing market, which has been struggling with high prices and affordability issues.
According to data from the Mortgage Bankers Association (MBA), the contract rate on a 30-year fixed mortgage fell by 8 basis points to 6.94% in the week ending June 14. This marks the first time since March that rates have dipped below the 7% threshold. Additionally, the five-year adjustable-rate mortgage dropped by 18 basis points to 6.27%, matching its lowest level since February.
The decline in mortgage rates has spurred a rise in financing applications for home purchases. The index of mortgage applications to buy a home increased by 1.6%, reaching its highest level since March. This follows an 8.6% jump in the previous week. The overall index of applications, which includes both home purchases and refinancing, advanced by 0.9% to the highest level since mid-January. However, the refinancing gauge slipped by 0.4%.
Mortgage rates often move in tandem with Treasury yields, which also saw a significant decline last week. This decline in yields is attributed to government figures showing a broad cooling in inflationary pressures. As a result, traders are increasingly optimistic that the Federal Reserve is in a better position to implement interest-rate cuts, possibly as soon as September.
To help buyers cope with the affordability crisis, builders such as Lennar Corp. and KB Home are offering incentives like discounted mortgage rates to bolster orders. These incentives are aimed at mitigating the impact of elevated list prices and giving housing demand greater traction.
The recent drop in mortgage rates below 7% is a positive development for the housing market, which has been grappling with high prices and affordability issues. The increase in financing applications and the potential for Federal Reserve interest-rate cuts are encouraging signs for both buyers and builders. As the market adjusts to these changes, it remains to be seen how long the lower rates will persist and what impact they will have on the broader economy.