The Mortgage Bankers Association's 30-year contract rate eased from 7.50%, but its purchase index dropped to 129.2 from 139.3. Total applications fell 5.3% and refinancing slid 2%, adding to a week of weak housing data.
A lower mortgage rate is supposed to bring buyers back. This week it did not.
The Mortgage Bankers Association said the average contract rate on a 30-year fixed mortgage fell to 7.41% in the week ended Oct. 16, from 7.50% the week before. Total mortgage applications fell 5.3%. The purchase index, which measures applications to buy a home, dropped to 129.2 from 139.3, a decline of about 7.3%. The refinance index slipped to 503.1 from 513.5, about 2%.
A rate that fell but remains high
The nine-basis-point decline in the contract rate is small next to the level. At 7.41%, borrowing costs remain close to the 7.40% average Freddie Mac reported for the week of Oct. 15. A drop of less than a tenth of a point does little to change the monthly payment on a typical loan.
Purchase demand responded accordingly. A 7.3% fall in one week is large, and it follows data earlier this week showing pending sales of existing homes down 7.3% in September, with declines in every region.
What the pairing suggests
The combination of a lower rate and weaker demand supports the view that housing is in a deep freeze driven by affordability and uncertainty, not only by the most recent move in rates. Buyers who are priced out at 7.5% are not necessarily pulled in at 7.4%.
The long end of the Treasury market gives little reason to expect quick relief. Wednesday's 20-year auction cleared at 5.469%, above September's sale, and the 10-year yield has held above 5% through October. Mortgage rates track those yields, so a sustained decline in mortgage costs would likely require a decline in long-term Treasury yields first.
What to watch
Freddie Mac's weekly survey on Thursday; next week's mortgage applications; homebuilder commentary on price cuts and incentives; and the 10-year Treasury yield. A purchase index that stabilizes even at a high rate would show demand finding a floor. Another weekly drop would reinforce the freeze.