Mortgage rates declined for the second week in a row, offering would-be borrowers slight relief.
Mortgage applications increased 3.4% from one week earlier, as interest rates on home loans declined for the second week in a row, giving buyers some relief.
For the week ending Oct. 23, the Mortgage Bankers Association's Market Composite Index—a measure of total mortgage loan application volume—increased 3% on a seasonally adjusted basis from one week earlier.
The Purchase Index, which measures the volume of mortgage applications to purchase a single-family home, increased 4% from one week earlier after seasonal adjustment, though purchase applications were down 18% from a year ago.
According to MBA calculations, the average contract interest rate for 30-year fixed mortgages with conforming loan balances is 7.37%, a slight decrease from last week's rate of 7.41%.
Mortgage rates dropped to 7.32% last week from 7.4% the week before, according to a separate survey from Freddie Mac.
“Mortgage rates declined for the second week in a row, with the 30-year fixed rate decreasing to 7.37%, the lowest in three weeks. The decline in rates gave borrowers some relief, with applications rebounding slightly, particularly conventional applications,” said Joel Kan, CMB, MBA’s vice president and deputy chief economist.
Despite the decline in rates, “Mortgage rates are still more than a percentage point higher than the same week last year and most homeowners still have rates much lower than prevailing market rates," he said.
That's pushed more borrowers to pursue riskier adjustable-rate mortgages. ARM rates are nearly a full percentage point lower than the 30-year fixed mortgage rate, and the share of ARM applications increased week over week from 10.5% to 11.3% — the highest level in more than a year.
The share of FHA loan applications decreased to 16.6% from 16.3% the prior week. The VA share of total applications decreased to 11% from 11.5% the prior week. And the USDA share of total applications remained unchanged at 0.5% from week prior.
Meanwhile, the refinance share of mortgage activity decreased slightly to 38.9% from 39% the previous week. Though the overall refinance index increased 3% from the previous week, it was 61% lower than the same week one year ago, as homeowners remain locked into their lower interest rates.
Following its decision in raise interest rates in September, the Federal Reserve is meeting again this week to hash out interest rate policy. It's widely expected that Fed Chairman Kevin Warsh and other policymakers will leave rates unchanged ahead of next week's midterm elections.
(Realtor.com) How mortgage rates are calculated
Mortgage rates are calculated based on various factors in the economy, and the length of your loan and credit score will also factor into the mortgage rate you qualify for.
The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, because most 30-year mortgages are either paid off or refinanced in roughly eight to 11 years.
That makes the duration on the loans roughly comparable, and mortgage lenders use the 10-year Treasury as a benchmark for setting rates, adding on a risk premium.
Long-term yields for Treasury notes are determined by a number of factors, including the supply of and demand for U.S. government debt, and investor expectations for inflation over the life of the bonds.