Mortgage demand is up 5.4% as interest rates ramp down

Mortgage applications increased 5.4% on a seasonally adjusted basis during the week ending Dec. 6, stemming from a 27% jump in refinance activity, according to a report released Wednesday by the Mortgage Bankers Association (MBA).

This is the latest weekly increase in mortgage applications, following a trend of steady demand increases over the past several weeks. This could represent a glimmer of hope for mortgage lenders heading into 2025. The MBA adjusted last week’s data for the Thanksgiving holiday.

Data at HousingWire‘s Mortgage Rates Center showed an average rate of 6.85% for 30-year conforming loans on Wednesday, a slight decrease from the week ending Dec. 6. This decline is consistent with MBA’s report.

“Mortgage rates decreased again for the third consecutive week, with the 30-year fixed rate dipping to 6.67 percent,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “Applications increased 5 percent, driven by a 27-percent surge in refinance activity, as borrowers with higher rates acted on the chance to lower their payments.

“Purchase applications remained relatively strong and have shown annual gains in all but one week over the past three months. In addition to lower rates, purchase activity continues to be supported by sustained housing demand and inventory that continues to grow gradually in many markets,” Kan added.

Although purchase applications fell 4% from the previous week, they were still 4% higher than the same week in 2023. Still, the increase in refinance demand caused the purchase share of mortgage applications to sink. Refinances accounted for 46.8% of all applications, up 810 basis points (bps) from the 38.7% share a week prior.

Adjustable-rate mortgage (ARM) activity declined for the second consecutive week, falling 70 bps to 5.3%. Government loan activity saw a slight jump. The Federal Housing Administration (FHA) share of all applications increased 50 bps to 16.5%. U.S. Department of Veterans Affairs (VA) loans followed suit, jumping 270 bps to 16.3% of all applications. U.S. Department of Agriculture (USDA) loans were flat at 0.4%.

MBA’s report also examined the average contract interest rates for several loan types. The average rate for 30-year conforming loans (balances of $766,550 or less) decreased by 2 bps to 6.67%. Rates for 30-year jumbo loans (balances of more than $766,550) fell 6 bps to 6.79%.

Rates for 15-year loans remained unchanged at 6.12%, while rates for 5/1 ARMs dropped dramatically by 43 bps to 5.81%. The Federal Housing Finance Agency (FHFA) recently announced plans to raise 2025 conforming loan limits to $806,500 for one-unit properties — 5.2% more than the current limit.

Alongside that change, the FHA will increase the minimum and maximum limits for loans to $524,224 and $1,209,750, respectively. Both agencies cited rising home prices and strained affordability as a driving factor.