Demand for mortgages sags as rates keep rising

Rising mortgage rates put a damper on demand for mortgages last week, with applications from both homebuyers and homeowners looking to refinance their existing loans taking a hit, according to the latest Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

Applications for purchase loans were down a seasonally adjusted 10 percent from the week before, and 12 percent from a year ago. Requests to refinance were down 7 percent week-over-week, and 52 percent from a year ago, when mortgage rates were nearly a full percentage point lower.

Joel Kan

“Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83 percent, said MBA forecaster Joel Kan, in a statement. “Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies.”

Kan said that with inventory remaining tight for entry-level buyers, the average loan request hit another record high of $446,000. There was a slight uptick in FHA and VA market share, with FHA loans accounting for 8 percent of applications, up from 7.7 percent the week before, and VA applications increasing to 10 percent of loan requests, up from 9.1 percent the week before.

Requests to refinance accounted for 56.2 percent of all applications, down from 57.3 percent the week before. Only 4.5 percent of borrowers applied for adjustable-rate mortgage (ARM) loans, unchanged from the week before.

The Mortgage Bankers Association reported average rates for the following types of loans during the week ending Feb. 4:

• For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 3.83 percent, up from 3.78 percent the week before. Although points decreased to 0.40 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
• Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 3.62 percent, up from 3.59 percent the week before. With points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
• For 30-year fixed-rate FHA mortgages, rates averaged 3.93 percent, up from 3.86 percent the week before. Although points decreased to 0.54 from 0.55 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
• Rates for 15-year fixed-rate mortgages, popular with borrowers who are refinancing, averaged 3.16 percent, up from 3.01 percent the week before. With points increasing to 0.47 from 0.41 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
• For 5/1 ARM loans, rates averaged 3.13 percent, up from 3.09 percent the week before. With points unchanged at 0.35 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.

Mortgage rates have been rising as the Federal Reserve tapers its support for mortgage markets and prepares to begin raising short-term interest rates as early as next month. Some Fed policymakers are also eager to start shrinking the Fed’s balance sheet over worries about inflation.

As an emergency measure during the pandemic, the Fed was buying $80 billion in long-term Treasury notes and $40 billion in mortgage-backed securities every month, which helped push mortgage rates to record lows.

The Fed started tapering its purchases in November, a process that it accelerated in December as inflation worries mounted. On Jan. 26, the Federal Open Market Committee announced plans to buy $20 billion in Treasurys and $10 billion in mortgages in February, before ending the Fed’s asset purchases in early March.

Fannie Mae’s latest National Housing Survey showed the percentage of Americans who think it’s a good time to buy a home fell to an all-time low in January, with rising home prices and interest rates exacerbating affordability issues.

But mortgage lenders are becoming more willing to loan to “non-prime” borrowers, with home loans provided to subprime and near-prime borrowers up 17.6 percent during the third quarter of 2021, according to TransUnion.

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Email Matt Carter