Homebuyers and owners rejoice - mortgage rates have finally shown signs of cracking after an extended housing deep freeze. A sharp decline in the 30-year fixed rate below 7% last week for the first time since March is sending shockwaves through the real estate market.
The average contract interest rate on the most popular U.S. home loan tumbled 8 basis points to 6.94% in the period ended June 14th, according to the Mortgage Bankers Association's weekly survey. That's over a full percentage point below October's punishing 20-year peak above 8%.
But it's the plunge in adjustable 5-year mortgage rates to just 6.27% that really caught the eyes of rate-spry borrowers. The 18 basis point weekly drop matched February lows and swiftly spurred application volumes higher.
The MBA's purchase loan index jumped 1.6% to its best level since March as buyers rushed to lock in lower costs. Refi requests ticked up too after previously stagnating for months amid skyrocketing financing expenses.
"We're finally seeing sustained demand optimism after the rate shockers of 2022," said Michael Weinstein, a housing finance specialist at Wells Fargo Securities. "Buyers have been stuck on the sidelines, but the momentum could be swinging again."
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Refi Party Isn't Over Yet
Application volumes still remain depressed compared to the refi boom years. But with mortgage rates now plumbing late-2021 levels, loan officers report a sudden uptick in borrower inquiries to cash-out home equity or refinance underwater loans.
Steve Disher at Movement Mortgage says his Virginia operation has been inundated with fresh client queries over the past two weeks. "People are definitely feeling that refi FOMO kicking back in on any further drops from here," he said. "The party could keep raging if the Fed pauses and the bond market rally continues."
Fade the Hype?
Of course, not everyone is convinced the reversal in mortgage rates is necessarily a paradigm housing shift. Many economic bears argue it's simply an overdue correction after overly restrictive monetary tightening and remains fool's gold.
Real estate economist Ralph DeFranco is among the skeptics, warning that the "pop in demand could be a headfake rally". Home prices may have capitulated, he says, but rental costs haven't - portending continued strain for working families.
"If inflation remains sticky, the Fed will likely have to re-hike rates into 2024," DeFranco cautions. "That's bad news for housing despite any false dawns lately on the mortgage front."
Playing the Long Game
For major homebuilders like Lennar and KB Home, however, any respite in borrowing costs is welcome relief after a dismal 2022. Both construction giants introduced aggressive buyer incentives this year like discounted mortgage rates and rate buydowns to juice stalling sales.
"We're in it for the long-haul, not just chasing fickle blips," said Lennar's Jon Jaffe. "If lower mortgage costs and our incentives can create a sustained tailwind in pricing and traffic, we're ready to really ramp things up quickly."
KB Home President Jeff Kaminski agrees the long-awaited improving affordability backdrop bodes well for future housing starts - provided it proves more than just transitory. "The million dollar question is whether the Fed can actually get its goldilocks soft landing this time," he said.
Regardless of the mixed longer-term mortgage outlook, one thing is undeniably clear: After an extended dry spell of soaring costs and declining activity, the dam of pent-up housing demand is finally showing cracks. And in real estate, perception often becomes reality when the refi rager hits town.