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A modest drop in rates led to an uptick in home loan applications.
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Roughly one year ago, mortgage rates were still sitting at reasonably affordable levels after staying ultra-low throughout 2021. But things have changed a lot since then on the borrowing front.
These days, you’re not going to find a 30-year mortgage anywhere close to 3%, whereas in early 2022, it was still possible to sign a home loan in the 3% range. But last week, the average 30-year mortgage rate dipped to 6.23%, according to data from the Mortgage Bankers Association. That’s the lowest rates have been since September. And seeing as how mortgage rates were at above 7% at several points during the latter part of 2022, that’s a big dip.
It also explains why mortgage loan application volume rose about 28% last week compared to the previous week. And it’s not just purchase mortgage volume that increased. Demand for mortgage refinances soared, too.
Of course, it’s easy to see why would-be buyers may have been tempted to lock in a mortgage to take advantage of lower rates. But should you rush to get a mortgage right now? Or are you still better off waiting for borrowing rates and housing market conditions to improve?
Don’t be too hasty
A mortgage in the lower 6% range is apt to be more affordable than a mortgage with a 7% interest rate or higher attached to it. But right now, home prices are still up and real estate inventory is still pretty limited. So all told, it actually isn’t the best time to be signing a mortgage and buying a home.
What’s more, we don’t know what direction mortgage rates will trend in. Recently, we got some good news about inflation (namely, that it cooled substantially in December, compared to November), and that could cause the Federal Reserve to ease up on interest rate hikes. It’s possible that will lead mortgage rates to soften even more, possibly dipping down to the 5% range later this year.
That’s why you shouldn’t necessarily rush to sign a mortgage today. It’s one thing to borrow if you’ve found a great home in your price range and you want to move forward. But otherwise, sitting tight a while longer could work to your benefit.
Could mortgage rates come back up?
Absolutely. That’s the risk you take any time you’re in the market for a home loan. Rates might fall one week but spring back up the next week, and it’s often impossible to predict what direction they’ll trend in from one week to the next.
But still, it’s best not to rush into homeownership for fear that if you don’t, you’ll miss out on your most affordable borrowing opportunity this year. There’s a good chance mortgage rates will drop further at some point in 2023, so if you’re not quite ready to buy, don’t. Instead, spend some time shoring up your finances and accumulating a larger down payment. Those moves will put you in an even stronger position to pounce on lower mortgage rates should they continue to dip.
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