Overview
Mortgage interest rates have recently hit a level that has not been seen since the year 2000, resulting in a significant drop in mortgage demand. According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume fell by 1.3% last week compared to the previous week, and it was 25.5% lower than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased from 7.31% to 7.41%, with points decreasing to 0.71 from 0.72 (including the origination fee) for loans with a 20% down payment. One year ago, the rate was 6.52%. The 30-year fixed jumbo mortgage rate also increased to 7.34%, which is the highest rate in the history of the MBA’s jumbo rate series dating back to 2011.
Projections
As a result of the Federal Open Market Committee’s (FOMC) latest projections, rates are expected to be higher for longer, which drove the increase in Treasury yields. This has impacted both prospective homebuyers and homeowners, causing overall applications to decline. Applications to refinance a home loan fell by 1% for the week and were 21% lower than they were one year ago. Similarly, applications for a mortgage to purchase a home fell by 2% for the week and were 27% lower than the same week year over year.
The supply and demand imbalance in the housing market has resulted in an unprecedented dynamic for potential buyers. Today’s buyers are facing a historically low supply of homes for sale, coupled with rising interest rates and prices. Higher interest rates historically have a cooling effect on home prices, but the supply and demand imbalance is so severe that it is pushing prices higher even though more and more buyers are unable to afford a home.
According to a separate survey from Mortgage News Daily, interest rates continued to move higher this week. Even sales of newly built homes, which had been rising due to the short supply on the resale market, took a hit in August, according to another report this week. Sales dropped nearly 9% in August from July’s pace, hitting the lowest level since March.
