Home Business Mortgage demand falls to lowest level since 1996

Mortgage demand falls to lowest level since 1996

by Mark Mendoza

Mortgage Rates Rise, Impacting Demand for Home Loans

Mortgage rates are on the rise, and it is starting to affect the housing market. Last week, total mortgage demand fell by 6% compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This decline in demand can be attributed to the increase in average contract interest rates for 30-year fixed-rate mortgages.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose from 7.41% to 7.53%. This increase might not seem significant at first glance, but it can have a substantial impact on homebuyers. Additionally, points rose from 0.71 to 0.80 for loans with a 20% down payment. Compared to the same week one year ago, when the rate was 6.75%, this represents a significant jump in mortgage rates.

Joel Kan, MBA’s vice president and deputy chief economist, commented on the situation, stating, “Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996.”

One significant area that experienced a decline in demand was refinancing. Applications to refinance a home loan dropped by 7% for the week and were 11% lower than the same week one year ago. The share of refinances is now less than one-third of all mortgage applications, a notable shift from just two years ago when refinancing made up roughly three-quarters of all mortgage applications.

Applications for mortgages to purchase a home also saw a decline, falling by 6% for the week and were 22% lower than the same week one year ago. Kan attributed this decrease to the rapid rise in rates, which led to a growing number of potential homebuyers being priced out of the market. However, he did note that there was an increase in applications for adjustable-rate mortgages (ARMs), with an 8% share in purchase applications, up from 6.7% a month ago. ARMs offer lower rates but are fixed for a shorter term, typically five or ten years.

These rising rates are not only impacting the mortgage market but also the overall housing market. Mortgage News Daily reported that the average rate on the 30-year fixed mortgage rose even higher, reaching 7.72% this week. This increase is likely due to investors responding to better-than-expected economic data, which may push the Federal Reserve to adopt a more aggressive interest rate policy.

As mortgage rates continue to climb, potential homebuyers and current homeowners looking to refinance may face challenges in securing affordable financing. Higher rates mean higher monthly mortgage payments, potentially making homeownership less affordable for some. However, there may be a silver lining for those considering adjustable-rate mortgages, as they still offer lower rates despite the overall increase.

It remains to be seen how long the trend of rising mortgage rates will continue and how it will ultimately impact the housing market. Homebuyers and homeowners should closely monitor mortgage rates and consult with professionals to make informed decisions regarding their mortgage financing options.

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