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Last week’s big drop in mortgage rates had many homeowners rushing to refinance but didn’t do much to spur would-be buyers into action, according to a weekly survey of lenders by the Mortgage Bankers Association.
The MBA Weekly Application Survey showed requests for purchase loans fell by a seasonally adjusted 3 percent last week compared to the week before, and were down 14 percent from a year ago.
Requests to refinance soared 15 percent week-over-week and were up 37 percent from a year ago, to the highest level since August 2022.
Relatively new FHA and VA mortgages were likely driving much of the refi demand, MBA Deputy Chief Economist Joel Kan said, but purchase loan applications continued to lag.
Joel Kan
“Mortgage rates declined last week, as recent signs of cooling inflation and the increased likelihood of Fed rate cuts later this year pulled them lower,” Kan said in a statement. “The 30-year fixed rate declined to 6.87 percent, the lowest rate since March 2024.”
Weak spring home sales prompted Fannie Mae economists last month to cut their forecast for 2024 existing-home sales to 4.15 million. But more listings are starting to come onto the market and the economy is cooling at a pace that should help mortgage rates stay on their current downward trajectory, economists at the mortgage giant said.
Elevated mortgage rates have left many homeowners who might otherwise be inclined to sell reluctant to part with the low rate on their existing mortgage, creating inventory shortages in many markets. Although the number of homeowners feeling constrained by the mortgage lock-in effect is gradually diminishing, ICE Mortgage Monitor data shows three out of four homeowners still have a mortgage rate under 5 percent.
Another issue for would-be homebuyers seeking jumbo mortgages that exceed Fannie Mae and Freddie Mac’s $766,550 conforming loan limit is that rates for jumbo loans haven’t come down as dramatically as they have for conforming mortgages.
Jumbo-conforming ‘spread’ widens
Rates for 30-year fixed-rate conforming mortgages averaged 6.76 percent Tuesday, down half a percentage point from a 2024 high of 7.27 percent registered on April 25, according to rate lock data tracked by Optimal Blue.
Since peaking at 7.56 percent on April 15, rates on jumbo mortgages have also come down, but not by as much. Borrowers seeking jumbo mortgages were locking rates at an average of 7.24 percent Tuesday.
Before the pandemic, rates on jumbo mortgages were often lower than conforming loans — by an average of 9 basis points from 2017-2019, according to Optimal Blue data.
But as the Federal Reserve raised rates in 2022 and 2023, many regional banks that have historically been major providers of jumbo mortgages pulled back as they coped with massive writedowns in the value of assets like government bonds and loans made when rates were lower.
Last year’s failures of Silicon Valley Bank, Signature Bank and First Republic Bank helped propel rates on jumbo mortgages above rates for conforming loans, a trend that’s continued.
The spread, or difference, between jumbo and conforming mortgage rates grew to 16 basis points in 2023, and has averaged 30 basis points so far this year.
Tuesday’s 48 basis-point spread between jumbo and conforming mortgage rates was the widest since March, when worries about regional banks flared up again.
But this time around, jumbo mortgage rates aren’t spiking — they’re just not coming down in concert with rates on conforming mortgages.
With a September Fed rate cut seen as increasingly likely, bond market investors who fund most conforming mortgage loans are suddenly willing to accept lower yields on mortgage-backed securities (MBS) backed by conforming loans. But jumbo lenders typically hold loans on their books and their funding costs may come down more slowly.
New York Community Bank’s online arm, My Banking Direct, was offering depositors 5.55 percent interest on savings accounts in April — the highest rate in the nation, CNBC reported. While rates on conforming mortgages have come down half a percentage point since then, My Banking Direct was still offering 5.45 percent interest on savings accounts Wednesday.
Some jumbo loans are securitized and sold to investors. If supply for jumbo MBS outstrips demand, that could also help keep rates high, said Jim Glennon, vice president of hedging and trading client services at Optimal Blue.
Jim Glennon
“The grapevine says there is a good amount of jumbo/non-conforming MBS being auctioned off by aggregators right now, so supply is good,” Glennon said in a statement to Inman. “That could cause spreads to widen temporarily.”
Glennon said jumbo mortgages represent a fairly small share of the market — about 14 percent — so “the data can be a little volatile.”
“I would argue that the spread is still running around average,” Glennon said. “The tightening in April/May was short lived and anomalous in the scheme of the last 12 months.”
Editor’s note: This story was updated to include perspective from Optimal Blue’s Jim Glennon.
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