Mortgage demand hits lowest level in 25 years as interest rates continue to rise
With a Fed meeting looming next week, rates on 30-year fixed-rate mortgages have risen well above the 7 percent threshold, a survey by the Mortgage Bankers Association released on Wednesday shows.
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Demand for home loans slipped again last week to its lowest level in more than two decades as interest rates on 30-year fixed-rate mortgages rose well above the 7 percent threshold, according to a weekly survey of lenders by the Mortgage Bankers Association, released on Wednesday has been published.
The MBA’s Weekly Mortgage Applications Survey showed demand for purchase loans fell a seasonally adjusted 2 percent last week compared to the previous week and 42 percent year-on-year. Requests for refinancing were essentially flat from the previous week but down 86 percent year-on-year.
“Mortgage rates have risen for the 10th straight week, with the 30-year fixed rate hitting 7.16 percent, the highest rate since 2001, MBA deputy chief economist Joel Kan said in a statement. “The ongoing trend of rising mortgage rates continues to dampen mortgage application activity, which has remained at the slowest pace since 1997.”
Looking only at purchase loan applications, Kan said homebuyer demand for mortgages has fallen to levels not seen since 2015. Adjustable-rate mortgages, popular with buyers looking to minimize their monthly payments, accounted for 12.7 percent of applications, down slightly from 12.8 percent the week before.
Applications for FHA loans, popular with first-time homebuyers with little savings for a down payment, accounted for 13.9 percent of all applications, up from 13.6 percent the week before.
“Despite higher interest rates and overall lower application activity, there was a slight increase in FHA purchase applications as FHA rates remained lower than traditional lending rates,” Kan said.
Mortgage interest rates exceed the 7% threshold
Optimal Blue Mortgage Market indices showed that interest rates on 30-year fixed-rate loans broke the 7 percent mark on Oct. 19 and continued to rise to fresh 2022 highs.
For the week ended October 21, the MBA reported average interest rates on the following types of loans:
- Fixed rate for 30 years compliant mortgages (loan balances of $647,200 or less), interest rates averaged 7.16 percent, up from 6.94 percent the week before. While the points fell from 0.95 (including the origination fee) to 0.88 for loans with an 80 percent loan-to-value ratio (LTV), the effective interest rate increased.
- Prices for 30 years of fixed interest jumbo mortgages (loan balances over $647,200) averaged 6.53 percent, up from 6.31 percent the week before. With the points increasing from 0.67 (including processing fee) to 0.68 for 80% LTV loans, the effective interest rate also increased.
- Fixed rate for 30 years FHA mortgages, rates averaged 6.79 percent, up from 6.63 percent the week before. Although the points fell from 1.60 to 1.59 (including the origination fee) for 80 percent LTV loans, the effective interest rate increased.
- prices for 15-year fixed-rate mortgages an average of 6.39 percent versus 6.09 percent the week before. The effective interest rate also increased, with the score increasing from 1.18 to 1.52 (including origination fee) for 80 percent LTV loans.
- To the 5/1 arms, rates averaged 5.86 percent, up from 5.65 percent the week before. Although the points fell from 0.90 to 0.88 (including the origination fee) for 80 percent LTV loans, the effective interest rate increased.
Mortgage rates have soared this year as Federal Reserve policymakers implemented a series of sharp rate hikes to curb inflation. The Fed is expected to make its fourth 75 basis point rate hike of the year next week.
But bond market investors are becoming more uncertain about the prospects for another rate hike of the same magnitude when the Fed holds its final meeting of the year on December 14. Several Fed policymakers have indicated that they would be open to a smaller 50-basis point hike in December if they see signs that inflation is easing.
The CME FedWatch tool, which monitors futures contracts to calculate the likelihood of Fed rate hikes, shows that bond market investors are pricing in a 75 basis point rate hike on Nov. 2 with a 94 percent probability, but only a 49 percent probability that they are identical hike in December.
10-year Treasury yields, which are considered a barometer of where mortgage rates may head next, have already retreated from 2022 highs registered on Oct. 21.
With rising interest rates making homes less affordable, and with many existing homeowners potentially feeling locked into the low interest rate on their existing mortgage, economists at Fannie Mae predict home sales will fall 18 percent this year and another 21 percent in 2023 . to 4.47 million.
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Email Matt Carter