Home News Mortgage refinance applications sink amid interest rate hikes: ‘You’re seeing things turn on a dime’

Mortgage refinance applications sink amid interest rate hikes: ‘You’re seeing things turn on a dime’

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Cleveland, Ohio — Rising interest rates In just a few months, it cut refinancing demand by more than half, essentially ending the refinancing boom and depleting demand for mortgage lenders.

According to data from the Mortgage Banking Association, 64% of all mortgage applications in December were refinancing. It was only 36% in April.

This switch is not due to the surge in home sales and the accompanying initial mortgages. This is because refinancing applications have decreased by 57% since December, a 68% decrease from the overall 2021 average. Higher interest rates reduce the benefits of refinancing.

Lenders are usually low in the cyclical industry due to low demand for refinancing.This, in turn, has suddenly led to overstaffed mortgage lenders. And staff reduction.

Joel Kang, Vice President of Economy, Trade and Industry Forecasting of the Mortgage Bankers Association, said:

In 2021, more than half of the money lent to mortgages was for refinancing ($ 2.35 trillion out of $ 4 trillion). MBA forecast.

Mortgage applications have plummeted due to rising interest rates.Sean McDonnell, Cleveland.com

Demand will be very low as prices go up

Mortgage applications for new homes tend to be stable, according to MBA data. However, refinancing demand can fluctuate significantly over a short period of time and is primarily based on rates.

Mr. Suga explained that refinancing really depends on whether existing homeowners can save money.

With a historically low 30-year fixed rate of less than 3%, refinancing makes a lot of sense. More than 5% isn’t, he said. In addition, many who were trying to refinance probably did so in the last few years.

The refinancing boom began shortly before the COVID-19 pandemic and continued until 2021.

Refinancing in 2020 and 2021 (65%) accounted for almost two-thirds of all mortgages, Kang said. Pre-pandemic interest rates fell below 4% and continued to decline during the pandemic, eventually reaching the 2.8% range.

But recently, the Federal Reserve has raised interest rates to combat inflation, with 30-year fixed mortgage rates above 5%.

According to MBA data, refinancing applications in 2020 increased by 110% compared to 2019. Refinancing applications increased 88% in 2021 compared to 2019.

The average number of applications in April was down 40% compared to the overall 2019 average.

The MBA’s market interest rate index, which combines refinancing and new mortgage applications, has been hit by declining refinancing demand, albeit with little volatility.

Total mortgage applications increased 63% in 2020 and increased 50% in 2021 compared to 2019. So far in 2022, it has decreased by less than 1% compared to the average demand in 2019.

Mortgage lenders have reduced staff accordingly. Both Wells Fargo and Rocket Mortgages have reduced their workforce either by layoffs or buyouts. Strongsville-based Union Home Mortgages have also recently fired workers.

Mortgage industry cycle

Refinancing demand is much lower than in the last two years, but it is not uncommon for demand to decline.

Mr. Kang said mortgage applications are inherently cyclical. According to MBA data, the number of applications increased significantly in 2008, 2009, 2010, and 2012. It decreased sharply as the number of applications increased.

The last two years have not been the highest ever. In 2012, 78% of mortgage applications were for refinancing. The share from 2009 to 2011 was 70%.Data provided to cleveland.com Return to 2005.

Mr. Suga said refinancing demand is likely to be near the bottom. The MBA’s forecast does not expect mortgage rates to be significantly higher than they are today.

The Federal Reserve is doing two things to reduce inflation, which affects interest rates. We are increasing the rates that financial institutions charge each other for short-term loans and reducing investments, including mortgages.

Mr. Suga said interest rates are more volatile than usual, as investors who need to fund mortgages are restrained. He said that the more certain things were, the more stable the rate should be.

“It will take weeks or months to see how the market will pick it up,” Kang said.

The MBA predicts that it will reduce approximately 2.23 million refinancing mortgages in 2022 from 6.4 million in 2021. Total mortgages, including new purchases, are projected to decline from 11.3 million in 2021 to approximately 6.8 million.

New mortgages are expected to decline by about 7% in 2022, but remain stable until 2024. Total lending is expected to continue to increase as housing becomes more expensive.

The MBA predicts that the 30-year fixed mortgage rate will return to 4.3% by 2024.

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