Homebuyers finally responded, as mortgage rates dropped

A brief drop in interest rates caused a strong bump in otherwise tepid mortgage demand. Total mortgage application volume jumped 9.4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s results included an adjustment for the July Fourth holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, decreased to 6.77% from 6.79%, with points holding steady at 0.62, including the origination fee, for loans with a 20% down payment. That was the lowest level in three months.

Applications to refinance a home loan rose 9% for the week and were 56% higher than the same week one year ago. Refinance demand has been particularly weak because mortgage rates were stuck at high levels for so long.

Applications for a mortgage to purchase a home also rose 9% for the week and were 25% higher than the same week one year ago.

“Homebuyer demand is being fueled by increasing housing inventory and moderating home-price growth,” said Joel Kan, vice president and deputy chief economist at the MBA. “The average loan size on a purchase application, at $432,600, was at its lowest since January 2025.”

While purchase mortgage demand has historically trended pretty closely with actual home sales, there are a lot of unusual factors in today’s market. Consumer sentiment is unsteady, and cancellation rates on contracts have been high for both new and existing homes. So far, pending sales, which represent signed contracts, have not been rising along with mortgage demand.

Mortgage rates began climbing again just before the July Fourth holiday, and are up again this week so far, according to a separate survey from Mortgage News Daily. It may not, however, be a sign of a stronger move higher.

“We often tend to see slightly brisk movement in the opposite direction after experiencing a consistent trend in the other direction. The month of June was arguably such a trend, and it took rates to their lowest levels in several months,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “Apart from the last few days of June, today’s rates are still the lowest since late April.”