A ‘For Sale’ sign outside a home in Albany, California, U.S., on Tuesday, May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.

Joe Raedle | Bloomberg | Getty Images

Mortgage rates retreated for the second week in a row last week, prompting existing and potential homeowners to get on the phone with their lenders.

According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage applications rose 7.2% last week compared to the previous week.

The average contract interest rate for 30-year fixed-rate mortgages with matching loan balances ($726,200 or less) decreased to 6.77% from 6.81% the previous week, with points falling to 0.65 from 0.66 (including establishment fee) for loans with a 20% down payment.

Home loan refinance applications rose 6% for the week, but were down 41% from the same week a year ago. While rates have fallen, they are still more than a full percentage point higher than a year ago and more than double what they were in the first two years the Covid pandemic, when the refinancing boom occurred. Most borrowers today have lower rates than what is currently available, so they don’t want to lose those rates even with a cash-out refinance.

Home mortgage applications rose 8% for the week, but were down 27% from the same week a year ago.

“Rates, which are still more than a percentage point higher than a year ago, and low for-sale inventory continue to limit home buying activity in many markets,” Joel Kan, an MBA economist, said in a news release. “The average purchase loan size decreased for the third week in a row as we continue to see more activity from new home buyers in the purchase market.”

Mortgage rates haven’t moved much this week, but that could change on Wednesday afternoon when the Federal Reserve reports the results of its latest policy meeting and updated rate forecasts.

“Some say the Fed will use these forecasts to telegraph another rate hike or two in 2023. Although the Fed Funds Rate does not directly dictate mortgage rates, such a move would still put quite a bit of upward pressure on interest rates of all forms.” and size,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.

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