Saul Loeb | AFP | fake images
Rising interest rates are crushing the mortgage market as too few homeowners can now benefit from a refinance and more potential buyers are priced out.
The total volume of mortgage applications fell another 6% last week compared to the previous week, according to the seasonally adjusted index from the Mortgage Bankers Association. Volume was down 41% from the same week a year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.90% from 4.80%, with points decreasing to 0.53 from 0.56 (including origination fee) for loans with a 20% down payment. That rate was just 3.36% a year ago. That is the fourth consecutive week of increases.
Applications to refinance a home loan, which have been falling steadily for months, fell another 10% week on week. Refinance demand was 62% lower than the same week a year ago.
“Mortgage application volume continues to decline due to rapidly rising mortgage rates as financial markets expect significantly tighter monetary policy in the coming months,” said Joel Kan, MBA economist. “As higher rates reduce the incentive to refinance, application volume fell to its lowest level since spring 2019.”
The refinancing share of all applications fell to 38.8% from 51% a year ago.
Mortgage applications to buy a home were down 3% for the week and were 9% lower than the same week a year ago. A strong job market with continued wage growth keeps demand for homes high, but the supply of existing homes for sale remains extremely tight. Bidding wars tend to be the rule rather than the exception. Affordability is falling rapidly and entry level buyers are being marginalized.
“The elevated average purchase loan amount and the steeper 8% drop in FHA purchase applications are indicative of first-time buyers being disproportionately affected by supply and affordability challenges,” Kan added.
The downturn in the mortgage business is leading to layoffs at companies like Movement Mortgage and Better.com. Mortgage companies had been on massive hiring sprees in the first year of the covid pandemicas interest rates set more than a dozen record lows and both refinance and purchase demand increased.