Mortgage activity falters as rates rise

Mortgage activity falters as rates rise
Mortgage application activity dropped 6.3% for the week ending Oct. 15, according to the latest Mortgage Bankers Association survey. And, as you might have guessed, mortgage rates had a lot to do with it.

“Refinance applications declined for the fourth week as rates increased, bringing the refinance index to its lowest level since July 2021,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a statement. “The 30-year fixed rate has increased 20 basis points over the past month and reached 3.23% last week – the highest since April 2021. The 15-year fixed rate increased to 2.54%, which is the highest since July.”

The MBA survey revealed that the refi index decreased 7% from the prior week and was 22% lower than the same week one year ago. The seasonally adjusted purchase index also dropped 5% from the week prior, and was 12% lower than the same week one year ago.

Different dynamics are playing out between new homebuyers and those looking to refinance.

“Insufficient housing supply and elevated home-price growth continue to limit options for would-be buyers,” said Kan.

Home prices are currently up 20% year-over-year, but a recent Goldman Sachs market forecast claims they aren’t close to reaching their peak. Goldman Sachs economists predict that home prices will grow another 16% by the end of 2022, largely because inventory won’t catch up in 2022. (Other economists are predicting home price growth between 2.2% and 11.6%.)

Relatedly, the U.S. Commerce Department reported Tuesday that single-family housing starts were unchanged in September. Purchase mortgage applications for new homes were down 16.2% in September compared to a year ago, a 4% decrease from August, the MBA reported. Economists have attributed the decline in mortgage activity to prices that are now out of reach for some homebuyers.

That rise in home prices won’t be helped by mortgage rates. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances increased last week to 3.26% from 3.22%, per the survey.

Given the Federal Reserve’s plan to begin tapering its $120 billion in monthly asset purchases, refi activity will soon fall dramatically. Refis are projected to check in at $2.26 trillion in 2021, a 14% decline from 2020, and then drop 62% to $860 billion in 2022, according to the MBA.

The latest MBA application survey found that the refinance share of mortgage activity dropped slightly to 63.3% from 63.9% the previous week. The adjustadble-rate mortgage share decreased to 3.3% of total applications.
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