Mortgage Applications Plummet to Lowest Level Since 1996 as Rates Soar
I was making small talk with the cashier at my local Quick Chek this morning and he told me he was working the overnight shift, but his real career was as a mortgage broker. I could feel his pain. Higher mortgage rates continue to take their toll on mortgage demand, especially for refinancing.
Total mortgage application volume dropped 0.8% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances — $726,200 or less — increased to 7.27% from 7.21%, with points increasing to 0.72 from 0.69, including the origination fee, for loans with a 20% down payment.
Refinancing activity has been hit especially hard by the rising rates. Demand for refinances dropped 5% for the week and was 31% lower than the same week one year ago. In 2020, when pandemic monetary policy had interest rates around 3%, the refinance share of mortgage applications was 63%. In comparison, the refinance share of mortgage activity decreased to 29.1% of total applications from 30.0% the previous week.
Applications for mortgages to purchase a home rose 1% week to week but were 27% lower than the same week one year ago. The adjustable-rate mortgage (ARM) share of total applications rose, signaling that potential buyers are using all the tools they can to lower their monthly payments. ARMs offer lower interest rates but are deemed riskier because their rates are fixed for a shorter term.
Mortgage rates remained high to start this week, according to a separate survey from Mortgage News Daily, but that could change following the release of the monthly Consumer Price Index (CPI) on Wednesday.
“While it’s always possible that big-ticket data will thread the needle and result in minimal movement, there’s little question that any big departure from expectations will rock the bond boat for better or worse,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.
Implications for the Housing Market
The rising mortgage rates are having a significant impact on the housing market. The number of homes for sale is decreasing, and the median home price is increasing. This is making it more difficult for people to afford to buy a home.
The rising rates are also making it more difficult for people to refinance their homes. This is because it is no longer financially advantageous to refinance at a higher interest rate.
The housing market is expected to continue to cool in the coming months as the Federal Reserve continues to raise interest rates in an effort to combat inflation.
What Home Buyers Can Do
If you are planning to buy a home in the near future, there are a few things you can do to make the process easier:
Get pre-approved for a mortgage before you start shopping for a home. This will give you an idea of how much you can afford to spend and will make you a more competitive buyer.
Be prepared to make a larger down payment. This will reduce the amount of money you need to borrow and will save you money on interest in the long run.
Consider buying a smaller home or a home in a less expensive area. This will help to keep your monthly payments affordable.
Be patient. The housing market is expected to cool in the coming months, so you may be able to find a better deal if you are willing to wait.
What Homeowners Can Do
If you are a homeowner, there are a few things you can do to make the most of the current housing market:
Consider refinancing your home if you have a good credit score and a low interest rate. This can save you money on your monthly payments.
Make extra payments on your mortgage to pay it off early. This will save you money on interest and allow you to build equity in your home faster.
Keep your home in good condition and make any necessary repairs. This will make your home more attractive to potential buyers if you decide to sell in the future.
The rising mortgage rates are having a significant impact on the housing market. However, there are things that home buyers and homeowners can do to make the most of the current situation.
