The numbers: Mortgage demand rose as rates fell sharply on the back of signs of a weakening U.S. economy.

Mortgage rates fell by 25 basis points over the last week, the biggest drop since July 2022.

The drop in rates provided a small boost to overall mortgage demand. The overall market composite index—a measure of mortgage application volume—rose in the latest week, the Mortgage Bankers Association (MBA) said on Wednesday.

The market index rose 2.5% to 165.9 for the week that ended November 3 relative to a week earlier. A year ago, the index stood at 199.9.

Key details: Home-buying and refinancing activity inched up as rates fell.

Buyer demand rose as some consumers jumped to seize lower rates. The purchase index—which measures mortgage applications for the purchase of a home—rose 3% from last week.

Refinancing activity also rose modestly. The refinance index increased by 1.6%.

The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 7.61% for the week that ended November 3. That’s down from 7.86% the week before, the MBA said.

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $726,200, was 7.58%, down from 7.8% the previous week.

The average rate for a 30-year mortgage backed by the Federal Housing Administration fell to 7.36% from 7.57%.

The 15-year fell to 6.98% from 7.14% relative to the previous week.

The rate for adjustable-rate mortgages fell to 6.76% from last week’s 6.77%. ARMs now comprise 9.8% of all applications.

The big picture: With indications of a weakening labor market and the U.S. Federal Reserve signaling a pause in interest-rate hikes, mortgage rates took a dive in the latest week, dropping by 25 basis points. If the economy continues to weaken, rates will drop further.

Meanwhile, aspiring homeowners who were spooked by 8% rates likely jumped on the dip, which boosted demand for mortgages. Further declines may prompt more home-buying activity, but that will still be constrained by the broader issue of low inventory.

What the MBA said: ”Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November [Federal Open Market Committee] statement, and data indicating a slower job market,” Joel Kan, deputy chief economist and vice president at the MBA, said in a statement.

Market reaction: The yield on the 10-year Treasury note was below 4.6% in early morning trading Wednesday.

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