May 28, 2023

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Demand for mortgage refinancing fell 14% as interest rates rose

Demand for mortgage refinancing fell 14% as interest rates rose

Prospective homebuyers with a realtor arrive at a home for sale in Dunlap, Illinois.

Daniel Acker | Bloomberg | Getty Images

A sharp increase in mortgage interest rates negatively affects the demand for loans, especially refinancing. The total volume of mortgage applications last week fell 8.1% 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 matching loan balances ($647,200 or less) increased to 4.50% from 4.27%, with points up to 0.59 from 0.54 (including origination fees) for loans of 20%. low paying.

“The jump in rates comes as markets move prices at a much faster pace to raise interest rates, as well as expectations of lower MBS purchases from the Federal Reserve,” said Mike Fratantoni, MBA chief economist. “New March MBA forecasts anticipate that mortgage rates will continue to trend upward through 2022.”

As a result, home loan refinancing requests, which are highly sensitive to weekly interest rate movements, were down 14% from the previous week and were 54% lower than the same week a year ago. The share of refinancing in mortgage activity decreased to 44.8% of total applications from 48.4% in the previous week.

“The number of qualified, high-quality candidates has already fallen by more than 75% over the past week — and these recent jumps are likely to reduce the population even further,” said Andy Walden, Vice President of Enterprise Research at Black Knight. “However, while we are now seeing a decline in aggregate lending activity, cash withdrawal insurance volumes continue to hold stronger than the rate/range ratio versus higher rates. This will be an important market segment for lenders, especially given the record $10 trillion equity Available is further stuffed with the still frenetic housing market.”

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Mortgage applications to buy a home, which are less sensitive to weekly price movements, fell 2% on the week and were 12% lower than the same week a year ago. Economists have begun to revise their home sales forecasts less, due to higher prices. The housing market is already expensive, with the imbalance between supply and demand putting more pressure on prices. Higher prices further impair affordability.

While the overall volume of purchase orders decreased slightly, there was a larger decrease in the demand for FHA and FHA loans. These loans are popular with low-income homebuyers.

“First-time homebuyers, who rely on these government programs, are facing increasing challenges due to the rapid increase in home prices and rising mortgage rates,” added Fratantoni.