50% Drop in Overall Mortgage Demand Compared to Last Year

Refinance demand plunged -68% y/y and mortgage purchase demand fell -14% y/y last week.

Cause & Effect of Rising Interest Rates

The average interest rate for popular 30-year fixed-rate mortgages with conforming loan balances of $647,200 or less increased to 5.20% last week from 5.13% the week before.?Likewise, points climbed to 0.66 from 0.63 (including origination fees) for loans with a down payment of 20%.?This last week’s interest rate of 5.20% is the highest interest rate level since 2010.

Total application volume dropped -5% w/w and nearly -50% y/y, according to the?Mortgage Bankers Association’s?(MBA) seasonally adjusted index.

Mortgage Purchase Applications Down -3% w/w & -14% y/y

According to Joel Kan, MBA’s associate vice president of economic and industry forecasting said, “Ongoing concerns about rapid inflation and tighter US monetary policy…increased (rates) across the board for all loan types…”?This annual decline of 14% y/y is growing as the housing market becomes even more expensive.

Kan said, “In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase demand…home purchase activity has been volatile in recent weeks and has yet to see the typical pickup for this time of year.”

Potential buyers who are in fact buying houses are turning to adjustable-rate mortgages (ARMs) because this instrument offers lower interest rates to borrowers.?The share of ARM applications hit 8.5% last week, its highest level since 2019.?ARMS can now be underwritten with fixed rate terms for 7 – 10 years.

Refinance Applications Fell -8% w/w & -68% y/y

As interest rates are now rising to sustained highs after months and months of record lows when many borrowers did refinance their mortgages, very few borrowers can now actually benefit from a refinance.

Last week was the sixth consecutive week of declining demand for refinancing.?The refinance share of overall mortgage activity last week fell to just 35.7% of total applications.

Climbing Mortgage Rates Now Hitting Homebuilders

The nation’s homebuilders are beginning to feel the effects of rising mortgage rates.

According to the most recent report from the?US Census Bureau,?single-family permits were down -4.8% m/m and -2% on single-family starts.

The?National Association of Home Builders?indicated, “Buyers are having trouble qualifying for a mortgage due to these latest rates.”?Buyers are now having to pay an additional $250/month on a median priced ($400,000) new single-family home, according to?CNBC. (Other outfits indicate that buyers have to pay an additional $500/month due to rising interest rates.)

Thanks to CNBC.