Rising interest rates are crushing the mortgage market, as precious few homeowners can now benefit from a refinance and more potential homebuyers become priced out.
Total mortgage application volume fell another 6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was down 41% from the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.90% from 4.80%, with points decreasing to 0.53 from 0.56 (including the origination fee) for loans with a 20% down payment. That rate was just 3.36% one year ago. That is the fourth consecutive week of increases.
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Applications to refinance a home loan, which have been falling steadily for months, dropped another 10% week to week. Refinance demand was 62% lower than the same week one year ago.
“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months,” said Joel Kan, an MBA economist. “As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019.”
The refinance share of all applications fell to 38.8% from 51% a year ago.
Mortgage applications to purchase a home declined 3% for the week and were 9% lower than the same week one year ago. A strong employment market with continuing wage growth is keeping housing demand hot, but the supply of existing homes for sale is still extremely lean. Bidding wars tend to be the rule, rather than the exception. Affordability is falling fast, and entry-level buyers are being sidelined.
“The elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges,” added Kan.
The drop in mortgage business is causing layoffs at companies like Movement Mortgage and Better.com. Mortgage companies had been on massive hiring sprees in the first year of the Covid pandemic, as interest rates set more than a dozen record lows and both refinance and purchase demand surged.