Lower Mortgage Rates Haven't Brought Buyers Back: Purchase Applications Slip Again
Rates eased again, yet MBA's purchase index fell 2% and ran 19% below last year. Here's why a lower rate alone doesn't fix affordability, and what buyers should compare.
By Anthony Brikho · 5 min read
Mortgage rates moved lower again in late October, but buyers did not respond. In its Weekly Mortgage Applications Survey released Nov. 4, the Mortgage Bankers Association said its seasonally adjusted Purchase Index fell 2% in the week ending Oct. 30. Unadjusted purchase activity was 19% lower than in the same week a year earlier.
That happened while MBA's average 30-year fixed conforming contract rate slipped to 7.30% from 7.37%. Our Nov. 4 report covered the same survey's jump in adjustable-rate applications. This article looks at the other side of the data: why cheaper borrowing hasn't yet brought purchase demand back.
What the survey showed
| Measure | Change | Basis |
|---|---|---|
| Market Composite Index (total applications) | −1.2% | Week over week, seasonally adjusted |
| Purchase Index | −2% | Week over week, seasonally adjusted |
| Purchase activity | −19% | Year over year, unadjusted |
| Refinance Index | +0.1% | Week over week |
| 30-year fixed conforming rate | 7.30% (from 7.37%) | Average contract rate, 80% LTV |
One week of data is noisy, and MBA's release does not say why purchase applications fell. What it shows is that a modest rate decline was not enough, on its own, to lift buying activity that week.
Why a lower rate doesn't fix affordability by itself
The size of the move matters. On a hypothetical $350,000 loan, principal and interest at 7.37% would be about $2,416 a month. At 7.30%, it would be about $2,399. That's a difference of roughly $17 a month, which is real money but small next to the overall cost of buying a home.
The rate is also only one part of the bill. A buyer's monthly housing cost includes property taxes, homeowners insurance and, for many loans, mortgage insurance or association dues. Those costs don't fall when rates do. The upfront hurdle doesn't fall either: the down payment and closing costs are set mainly by the price of the home and the loan terms.
Other factors can keep buyers on the sidelines regardless of rates: home prices in their area, how many homes are for sale that fit their budget, job and income confidence, and the time of year. Purchase activity usually slows heading into late fall and winter. MBA adjusts its weekly index for seasonal patterns, but the year-over-year comparison is unadjusted, so it compares the same week across two years rather than correcting for the calendar.
MBA's own Purchase Applications Payment Index put the median purchase applicant's principal-and-interest payment at $2,215 in September, up 7.1% from a year earlier. That figure helps explain why buyers may need more than a few basis points of relief.
Survey averages are not your rate
MBA's rates are averages from applications its member lenders report, for loans with an 80% loan-to-value ratio and a stated number of points. Freddie Mac's separate Primary Mortgage Market Survey put the 30-year fixed at 7.24% on Oct. 29. The two surveys measure different things, so their numbers differ.
Neither is a quote. The rate a lender offers you depends on your credit score, down payment, loan amount, property type, occupancy, points and the day you lock. A survey tells you which way the market is moving; only a Loan Estimate tells you what a loan will cost you.
A buyer's checklist for comparing offers
- Compare the full monthly payment. Add principal and interest, property taxes, homeowners insurance, mortgage insurance and any association dues. Page 1 of the Loan Estimate shows the estimated total monthly payment.
- Request quotes on the same day. Rates change daily, so ask several lenders for Loan Estimates with the same loan amount, loan type and down payment.
- Check points and lender credits. A lower rate may come with discount points. Compare the rate alongside the points and credits in Section A of page 2.
- Compare total closing costs and cash to close. Look at origination charges, services you can shop for and the "Cash to Close" figure, not just the rate.
- Use the APR as a cross-check. The APR folds in certain fees, which helps compare loans with different costs over the same term.
- Understand the rate lock. Note the lock's expiration date and time, what an extension costs and whether a float-down option exists.
- Budget for what rates can't change. Get an insurance quote and check the property's tax bill before you make an offer.
The bottom line
The latest survey shows borrowing costs easing while purchase applications fell and remained well below last year. That isn't a forecast for the housing market. It's a reminder that for most buyers, affordability depends on the whole payment and the cash needed up front, not on the rate alone.