Mortgage applications surged last week, driven by a slight decrease in interest rates-the first decrease in over two months. Applications to buy a home mortgage rose 12% from the previous week and were 52% higher than the same week one year ago, the Mortgage Bankers Association said. This surge in demand comes after the average interest rate for 30-year fixed-rate mortgages dropped below its previous level of 6.90% to record 6.86%. Though the decrease was merely slight, lower rates accompanied by pent-up demand acted as a catalyst for homeowners to act.

The decline in the mortgage rates was considered another major trigger to the increase seen in homebuying. Many would-be buyers waited for a rate cut or merely for a post-election time to get good deals in the market. Furthermore, there was hope that the limited supply of homes for sale would improve. Indeed, housing inventory has improved considerably this year and is providing more choices to buyers. Consequently, the average size of purchase loans increased to $439,200, the highest in about a month.

However, refinancing activity did not gain the same momentum. Applications to refinance a home loan were down 3% from the previous week, but remained 119% higher compared to the same period in 2023. The slowdown in refinance activity was largely due to decreased demand for FHA and VA refinances. Moreover, the MBA added that the year-over-year comparison might be skewed by the early timing of Thanksgiving in 2023. This year it fell on a week later date.

While the mortgage market is experiencing mixed trends, overall demand for loans is strong. The uptick in homebuying activity shows continued consumer confidence, especially as housing supply improves. According to economists, the mortgage rates may change more based on the announcement of future economic information. But generally, this week has been the lightest in trading as markets are somewhat erratic, especially in bond markets during the Thanksgiving period. The outstanding demand for refinancing is cooling, but homebuyer demand is rising, indicating that still many are looking forward to exploiting the housing market conditions that continue to improve.