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Mortgage rates, Home Prices Continue to Weigh on Homebuyer Demand

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Purchase applications have declined in eight of the last nine weeks, according to a weekly survey by the Mortgage Bankers Association on Wednesday.

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Requests for purchase loans fell last week as volatile mortgage rates and high home prices continue to take a toll on homebuyer demand.

Demand for purchase loans was down by a seasonally adjusted 2 percent last week from the week before, and by 23 percent from a year ago, according to a weekly survey released Wednesday by the Mortgage Bankers Association. Requests to refinance were down 8 percent week over week and 83 percent from a year ago.

“Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates and a weaker economic outlook,” MBA forecaster Joel Kan said in a statement. “However, rising inventories and slower home-price growth could potentially bring some buyers back into the market later this year.”

Volatile mortgage rates

The Optimal Blue Mortgage Market Indices show that after retreating from a 2022 peak of 6.06 percent registered on June 14, rates for 30-year fixed-rate conforming loans have been on the rise again for much of August.

Mortgage rates eased slightly on Friday, despite warnings from Federal Reserve Chair Jerome Powell not to underestimate the Fed’s determination to bring down inflation. But the CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows traders this week pricing in a 68 percent chance of a 75-basis point hike in the short-term federal funds rate on Sept. 21.

Joel Kan

“Mortgage rates have been volatile over the past month, bouncing between 5.4 percent and 5.8 percent,” Kan said. “In another sign that market volatility has picked up, the average rate on a jumbo loan was 5.32 percent, 48 basis points lower than for a conforming loan. This spread reached a high of over 50 basis points in July – and had narrowed – before now widening again.”

For the week ending Aug. 26, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 5.80 percent, up from 5.65 percent the week before. With points increasing to 0.71 from 0.68 (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 5.32 percent, up from 5.28 percent the week before. Although points decreased to 0.48 from 0.58 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 5.57 percent, up from 5.43 percent the week before. Although points decreased to 1.09 from 1.10 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing averaged 5.10 percent, up from 5.01 percent the week before. While points decreased to 0.82 from 0.84 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 4.78 percent, down from 4.81 percent the week before. With points decreasing to 0.61 from 0.74 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

Mortgage rates expected to ease

Source: Fannie Mae Housing Forecast, August 2022

Over the long run, some economists think mortgage rates have peaked and will trend downward into next year.

In a forecast issued Aug. 22, Fannie Mae economists acknowledged the risk that the Fed will continue to be aggressive in raising short-term interest rates if inflation and job growth remain strong. But those rate hikes might not put additional pressure on long-term interest rates including mortgages, with expectations of a “modest recession” next year along with softening in the labor market as the effects of tighter monetary policy take hold.

In a July forecast, economists at the Mortgage Bankers Association also predicted a less pronounced pullback in mortgage rates.

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Email Matt Carter

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