Lower mortgage rates are bringing more borrowers out of the woodwork

With the calendar shifting to September and the next meeting of Federal Reserve policymakers only two weeks out, mortgage rates continue to recede and evidence suggests that borrowers are reacting to more favorable housing market conditions.

At HousingWire‘s Mortgage Rates Center on Tuesday, the 30-year rate for conforming loans averaged 6.60%, down from 6.64% one week ago. The 15-year conforming rate was 6.23%, down from 6.28% a week ago.

Lower rates have recently sparked more activity in the mortgage market. Attom reported last week that the number of originations rose 23% between the first and second quarters of 2024, the first quarterly increase in a year. Purchase loan activity jumped by 33% and refinance activity increased by 10% during this period.

“A cautionary note is warranted, as we shouldn’t read too much into one great quarter,” Attom CEO Rob Barber said in a statement. ”A similar trend occurred last spring, with lending dropping off significantly later in the year. But with interest rates settling down and projections for more cuts from the Federal Reserve over the coming months, it wouldn’t be surprising if business increased even more for lenders over the rest of 2024, or at least didn’t drop significantly.”

Despite the quarterly increase, the total number of originations — including purchase, refinance and home equity loans — were down 1.6% year over year in Q2 2024 and were 61% below peak activity levels of 2021. Measured by dollar volume, originations were up 27.6% from the prior quarter and up 1.1% year over year.

Last week, Freddie Mac reported that mortgage rates reached their lowest level since May 2023. In response, Bright MLS chief economist Lisa Sturtevant noted that while “declining rates are good for both buyers and sellers,“ rates are not yet low enough to alleviate the lock-in effect that has stopped many potential listings in their tracks.

“Nationwide, there is an average three percentage point gap between rates on new and existing mortgages,“ Sturtevant said in a statement. “This rate gap has kept some homeowners from listing their home for sale. As rates fall, the rate gap is going to be less of an obstacle to sellers.  

“Inventory has already started increasing and new listing activity should continue to grow this fall,“ she added. “The housing market will begin to move toward balance; however, buyers will still find the market competitive. Mortgage rates will bump around over the next few weeks and I expect rates to be between 6.2% and 6.4% at the end of the year.“ 

Prospective buyers are still being stymied by an overall lack of for-sale inventory in many areas of the country. Data from Altos Research shows that supply has likely peaked for the year as inventory declined slightly to 704,000 single-family homes during the week of Aug. 30. By comparison, there were more than 969,000 single-family listings at the same time in 2019, prior to the COVID-19 pandemic.

Pending home sales, a forward-looking indicator of closed sales, aren’t responding positively either. The National Association of Realtors (NAR) reported last week that pending sales declined by 8.5% year over year in July to reach the second-lowest reading in the history of the dataset, surpassed only by the frozen market conditions of April 2020 at the start of the pandemic.

“Modest improvements in affordability may not be enough to significantly boost demand, as household incomes remain stretched relative to mortgage payments,“ said Odeta Kushi, deputy chief economist at First American, in response to the pending sales report. “Homebuying will not pick up meaningfully until income growth begins to outpace home price growth and mortgage rates move lower.”

The good news for buyers is arriving in the form of price cuts, with more than 39% of listings now going for less than their original list price, according to Altos Research. Additionally, lower sales prices are making monthly mortgage payments more affordable. The Mortgage Bankers Association (MBA) reported last week that the national median payment for purchase loan applicants declined for a third straight month in July to $2,140.