Falling Mortgage Rates Fail to Spark Buyer Interest as Applications Plunge

Falling mortgage rates failed to entice potential homebuyers last week as mortgage applications and refinancing activity both fell by double-digit percentages, possibly signaling that buyers are becoming more selective as inventory rises.
The declines came despite the fact that mortgage rates on the benchmark 30-year fixed fell for the third consecutive week, to 6.5 percent, the lowest since May 2023.
“Both mortgage rates and mortgage applications have now stabilized after a few weeks of financial market volatility, which led to a quick drop in mortgage rates,” Joe Kan, MBA vice president and deputy chief economist, said in a statement.
Rates ticked up afterward, although on a weekly basis they’ve fallen for the past three weeks straight, to 6.5 percent last week, the lowest since May 2023, according to the MBA.
Purchase applications fell last week to their lowest level since February 2024, according to Kan, who saw it as a sign that potential homebuyers are becoming more picky.
“Home sales have slowed despite rising inventory levels,” he said. “Even with lower mortgage rates, potential buyers might be more selective now that there are more options.”
Another factor keeping potential buyers on the sidelines could be high prices and the fact that even though mortgage rates have drifted lower, they remain relatively high.
“It’s terrific news for homeowners who are moving ahead in wealth gains,” NAR chief economist Lawrence Yun said in a statement. “However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”
Among 48 percent of America’s housing markets, families needed a qualifying income of at least $100,000 to afford a 10 percent down payment mortgage, according to the NAR.
Even though the NAR predicted that housing affordability would improve in the coming months as more supply reaches the market, recent data on new housing construction suggests relief could be limited.
The uptick in future sales expectations was offset by a decline in present sales conditions, as 33 percent of builders cut prices to boost home sales in August, the highest share of discounted homes so far this year.
Overall builder confidence slumped to its lowest point of the year in August, as borrowing costs remain elevated amid the current high-interest rate environment.