Mortgage Applications Plummet as Mortgage Rates Hit 23-Year High
In a surprising turn of events, mortgage applications have come to a grinding halt, falling 6% for the week ending September 29. This decline in applications is largely attributed to a significant increase in mortgage rates, which have reached a 23-year high of 7.53%. These findings were reported by the Mortgage Bankers Association (MBA) in their latest weekly data.
According to the MBA, mortgage application activity has hit its lowest level since 1996. Purchase mortgage application volume has been particularly affected, experiencing a slowdown of 22% compared to the same time last year. On the other hand, refinance applications have also seen a decline of 7% from the previous week and 11% from the previous year.
Joel Kan, MBA’s vice president and deputy chief economist, expressed concern over these figures, stating, “The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market.” The sudden surge in mortgage rates has deterred many prospective homebuyers from entering the market.
In a surprising twist, however, there has been a rise in the share of adjustable-rate mortgage (ARM) applications, accounting for 8% of all loan applications. Kan attributes this increase to homebuyers seeking ways to lower their mortgage payments amidst the rising rates. However, even with the increase in ARM demand, mortgage rates for all loan types, including ARMs, have continued to rise. The average contract interest rate for 5/1 ARMs reached 6.49%, slightly up from 6.47% the previous week.
Meanwhile, the refinance share of mortgage activity has decreased to 31.7% of total applications from 31.9% the previous week.
The percentage of Federal Housing Administration (FHA) loan activity has seen a slight increase, rising to 14.5% from 14.1% for the week ending September 29. However, the Department of Veterans Affairs (VA) loan activity has decrease to 10.1% from 10.9% the previous week. The Department of Agriculture (USDA) loan share remains unchanged at 0.5%.
Overall, the housing market is witnessing a significant slowdown due to the surge in mortgage rates. As the MBA data suggests, potential homebuyers are being driven away from the market, resulting in a decline in mortgage applications. It remains to be seen how these trends will impact the housing market in the long run, and if mortgage rates will stabilize or continue to rise.