Homebuyers returned to the market as mortgage rates declined, with both mortgage and refinance applications increasing from a week earlier, according to data from the Mortgage Bankers Association for the week ending May 5.
While mortgage applications went up 6% from a week earlier, they were still 30% lower than a year ago. Similarly, refinance applications, which went up 10% from the previous week, were 40% below last year’s levels.
The average rate on 30-year fixed mortgages dropped for the second consecutive week to 6.35%, according to Freddie Mac, which called it a “welcome departure from the record increases” of last year.
“While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023,” wrote Freddie Mac economists in a note. “This should bode well for the trajectory of mortgage rates over the long-term.”
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Typically, May tends to be a busy time for the housing market.
This year, however, the spring market has been subdued, says Lisa Sturtevant, chief economist for Bright MLS.
“Elevated mortgage rates are one reason some buyers have stayed out of the market,” she says. “For others, there is simply just too much uncertainty. Instability in the banking sector, headlines about layoffs, and growing recessions risks are causing prospective homebuyers to hold back.”
However, it’s not just about economic uncertainty and consumer confidence.
“More inventory could entice some buyers to get back in the market, even during this uncertain time,” says Sturtevant.
Inventory in the first quarter averaged 1,630,000 listings at any given time, down 40% from the first quarter of 2019, a year before the onset of the COVID-19 pandemic, according to the National Association of Realtors.
But don’t expect housing inventory to go up anytime soon.
“The recent dip in mortgage rates has not been enough to persuade homeowners with a sub-3% mortgage rate to list their home. We may have to see rates below 6% before significant numbers of sellers would be willing to trade in their super-low mortgage rate.”
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
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