US Mortgage Applications Surge As Rates Dip: Is The Industry Moving Out Of The Woods? Plus: Stocks, ETFs To Watch

The latest data from the Mortgage Bankers Association (MBA) revealed a significant uptick in U.S. mortgage applications, marking a 3% increase from the previous week and the sharpest weekly rise in two months.

The surge came during a decrease in the average contract interest rate for 30-year fixed-rate mortgages, now at 7.41%, the lowest in two months.

Joel Kan, MBA's vice president and deputy chief economist, stated a reduction in U.S. bond yields triggered a decline in mortgage rates as incoming data signaled a softer economy and more signs of cooling inflation.

"Mortgage applications increased to their highest level in six weeks, but remain at very low levels,” he added.

Yields on a 30-year Treasury bond fell to 4.53% at the time of this writing, marking the lowest level in two months. The popular iShares 20+ Year Treasury Bond ETF TLT has rallied over 10% over the past month,

Chart: 30-Year Mortgage Rates Drop To 7.41%, Providing Relief To Applications

This rise in mortgage applications signaled a potential shift in the housing market, possibly driven by cooling inflation and a more approachable interest rate environment.

In its latest housing market outlook, Morgan Stanley anticipated improving affordability for U.S. houses heading into 2024.

Morgan Stanley's experts believed a decrease in mortgage rates could spur a rise in the availability of homes for sale, leading to a modest drop in home prices, around 3%, by the end of 2024. 

However, the sustainability of this trend remained to be seen, especially considering the still subdued levels of refinance applications.

Read Also: US Housing Market Braces For Affordability As Mortgage Rates Ease: What Analysts Expect For 2024

Market Reactions: Real estate stocks, as tracked by the Real Estate Select Sector SPDR Fund XLRE, rose 0.7% minutes after the opening bell on Wednesday. Prologis Inc. PLD, American Tower Corp. AMT, CoStar Group Inc. CSGP figured among the sector’s best performers for the day, each posting a 1% increase.

The iShares Mortgage Real Estate ETF REM also showed a similar performance. Today’s top performers in this niche included NexPoint Real Estate Finance, Inc. NREF, up 2.2%, BrightSpire Capital, Inc. BRSP, up 1.4% and Orchid Island Capital, Inc. ORC up 1.2%.

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