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The numbers: U.S. mortgage applications inched up despite rates reaching towards 7%.

Mortgage rates rose on the back of the Federal Reserve throwing cold water on market expectations that it would cut its benchmark interest rate starting in March. Yet mortgage demand was not dampened as some homeowners found comparatively lower rates attractive enough to refinance.

The overall market composite index — a measure of mortgage application volume — increased in the last week, according to the Mortgage Bankers Association (MBA) said on Wednesday. 

The market index rose 3.7% to 210.0 for the week ending February 2 from a week ago. A year ago, the index stood at 241.2.

Key details: The purchase index — which measures mortgage applications for the purchase of a home — fell 0.6% from a week ago.

The refinance index jumped 12.3%, despite the fact that most homeowners have rates below 6%.

The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 6.8% for the week ending February 2. That’s up from 6.78% from the week before. 

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $726,200, was 6.88%, down from 6.94% the previous week. 

The average rate for a 30-year mortgage backed by the Federal Housing Administration was down to 6.57% from 6.61%.

The 15-year rose to 6.41% from 6.34% from the previous week. 

The rate for adjustable-rate mortgages fell to 6.14% from last week’s 6.23%. 

The big picture: Home buyers today continue to face low inventory and rising home prices, and with the Fed seen putting off interest rate cuts in March, mortgage rates are inching upwards, in another hit to housing affordability.

Albeit small, the increase in refinancing activity seems to be at odds with the fact that most homeowners have ultra-low mortgage rates. But as Andy Walden of Intercontinental Exchange notes, many homeowners who bought homes with loans originated in 2023 — when the 30-year was as high as 8% — could be finding rates in the 6% range attractive. 

What the MBA said: “Rates at these levels have not prompted much of a reaction in the refinance market, as most homeowners have mortgages with much lower rates,” Joel Kan, vice president and deputy chief economist at the MBA, said in a statement.

“[Though] purchase activity has been strong to start 2024 compared to the final quarter of 2023,” he added, “activity is still weaker than a year ago because of low housing supply.”

Market reaction: The yield on the 10-year Treasury note
was over 4% in early morning trading Wednesday.

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