Mortgage Refinance Demand Drops by 19% as Interest Rates Reach Highest Point Since July

November 7, 2024 TruthUSA

Mortgage activity declined significantly last week as mortgage rates rose to their highest levels in months.

Mortgage refinance applications dropped by 19 percent last week as interest rates reached their highest point since July, according to the Mortgage Bankers Association’s (MBA) latest weekly survey.

The decrease in refinance demand represents the lowest level of refinance activity since May, coinciding with the average contract rate for a 30-year fixed mortgage reaching 6.81 percent last week, the highest since July, as per the survey released on Nov. 6.

Overall mortgage application volume fell by 10.8 percent last week, marking the sixth consecutive week of decline. Purchase applications fell by 5 percent, hitting their lowest level since mid-August.

“Ten-year Treasury rates remain volatile and continue to exert upward pressure on mortgage rates,” noted Joel Kan, MBA’s vice president and deputy chief economist. Mortgage rates have been increasing since mid-September, following the trajectory of rising 10-year Treasury yields, which are closely linked.

Both mortgage rates and 10-year yields peaked in late April, reaching around 7.2 percent and 4.6 percent, respectively. They then declined steadily through the summer, with mortgage rates dropping to approximately 6 percent and 10-year yields touching 3.6 percent by early September. However, this trend reversed after the Federal Reserve cut interest rates in mid-September, causing both metrics to rise.

Some analysts suggest that the increase in 10-year yields aligns with historical patterns observed during previous Fed rate-cutting cycles. Padhraic Garvey, ING’s regional head of research for the Americas, pointed out in a recent report that it’s typical for the 10-year yield to rise by 20–50 basis points after the Fed’s initial rate cut.

“That’s not unusual. It likely persists for a bit,” Garvey wrote. He predicted that the 10-year yield would decline only after significant weakening in U.S. labor market data.

In a subsequent note, Garvey projected that the 10-year yield would bottom out around 3.5–3.7 percent for the remainder of 2024 before climbing to 4.5 percent or higher.

This potential increase could be driven by elevated Treasury issuance in U.S. government borrowing exceeding expectations. Other factors influencing yields include shifts in investor sentiment, such as that seen after former President Donald Trump’s election victory, which spurred a selloff in bonds as investors pivoted to riskier assets like stocks and cryptocurrencies. Treasury yields and prices move inversely, with bond selloffs pushing yields higher.

On Nov. 6, the 10-year Treasury yield climbed to approximately 4.44 percent, its highest level since July. The dollar strengthened and Wall Street’s main indexes soared, hitting record highs.

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