LIVE MARKETS-Mortgage see-saw: Rate drop launches demand to highest since September

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MORTGAGE SEE-SAW: RATE DROP LAUNCHES DEMAND TO HIGHEST SINCE SEPTEMBER

The cost of financing home loans dropped to a near six-month low last week, prompting a surge in mortgage demand, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI slid 9 basis points to 6.61%, the coolest it's been since mid-October. That was enough to seduce would-be borrowers away from the sidelines.

Applications for loans to purchase homes USMGPI=ECI jumped 9.2% and refi applications USMGR=ECI, which accounted for 43.6% of total mortgage activity, surged 35.3%.

The combined 20% pop in mortgage applications sent demand to its "highest level since September 2024 ... in a volatile week where economic uncertainty caused rates to drop across the board" writes Joel Kan, MBA’s deputy chief economist. "Both homebuyers and refinance borrowers were quick to take advantage of this dip in rates."

Elevated mortgage rates have had a two-fold drag on the housing market. First it has deterred owners, who locked in much lower rates, from putting their homes on the market, resulting in an inventory drought. Second, combined with rising home prices resulting from tight inventories, inflated rates have pushed affordability beyond the grasp of many potential buyers.

But that picture appears to be improving.

The average 30-year fixed rate, which tends to track benchmark U.S. Treasury yields, is now 40 basis points cooler than it was during the same week last year.

Over the same time period, purchase and refi demand have improved by 24.5% and 92.9%, respectively.

Home purchase loan demand is considered to be among the housing sectors most leading indicators, but all indicators are to some extent backward-looking.

The stock market, on the other hand, is resolutely forward-looking, reflecting where investors expect the sector to be six months to a year from now.

Through that lens, the view's more cloudy.

For much of the past year or so, the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX handily outperformed the broader market.

That relationship began to reverse in late November.

The chart below measures the indexes 12-month performance. Over that time the SPCOMHOME and HGX are down 24.9% and 19.7%, respectively, falling well below the S&P 500's 4.4% dip over the same time period.

(Stephen Culp)

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