US housing market gains momentum as loan applications jump amid first drop in mortgage rates in 5 weeks

• The housing market is gaining steam as rates drop and mortgage applications surge.
• The 30-year mortgage rate fell for the first time in five weeks, and applications jumped 7% last week.
• But volatility in the market could still hinder housing activity, MBA's deputy chief economist said.

Housing market activity has picked up over the last week, evidenced by a jump in home loan applications following a drop in mortgage rates.

Mortgage applications jumped 6.5% over the week ending on March 10, the Mortgage Bankers Association said on Wednesday. That comes amid the first drop in mortgage rates in five weeks, with the rate on the 30-year fixed mortgage falling to an average of 6.71%.

The pop in housing activity has been spurred by falling Treasury yields, with markets lowering their expectations for interest rates after the collapse of Silicon Valley Bank over the last week. The tech-focused bank was seized by the FDIC after posting a $1.8 billion loss on its bond portfolio, sparking chaos in bank stocks and raising pressure on the Federal Reserve to soften its interest rate hikes to avoid putting more stress on the banking system. 

"Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds. This decline pushed mortgage rates for all loan types lower," MBA deputy chief economist Joel Kan said in a statement.

The housing market has been slowing since the Fed began to aggressively raise interest rates last year, with central bankers hiking rates 1,700% to control inflation. That caused rates on the 30-year mortgage to push past 7% in 2022, while housing activity suffered a major slowdown.

Despite the recent uptick, application volumes are still about 40% below levels seen last year, Kan said, and mortgage rates are still hovering near a 20-year high. 

"While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions," he added. 

Industry experts have been divided on the fate of the housing market over the next few years, with some commentators warning of a impending housing crash and others pointing to signs of an imminent rebound.

Though home sales and prices could drop further this year, limited housing supply could lead to a rise in home prices in 2024, according to the National Association of Realtors.