Mortgage demand in the U.S. fell to a freezing point due to rising mortgage rates and a shortage of inventory in the housing market.
On Wednesday, total mortgage applications (including purchase and refinance applications) fell 6.5% last week compared to the previous week, according to a seasonally adjusted index released by the Mortgage Bankers Association (MBA). It was the fourth consecutive week of declines and demand fell to its lowest level in 22 years.
Mortgage rates are starting to recover after a brief dip in May, while the housing market remains hampered by a shortage of inventory. As a result, mortgage demand continues to decline.
The average contract interest rate for 30-year fixed-rate mortgages with a loan limit of $647,200 or less rose from 5.33% to 5.40%, and the number of points on loans with a 20% down payment rose from 0.51 (including origination fees) to 0.60.
Refinancing demand, the most sensitive to weekly rate changes, fell another 6% last week and was down 75% year-over-year. The vast majority of mortgage holders now enjoy interest rates well below current rates, and even those looking to cash out are opting to take out a second mortgage rather than refinance their first lien.
“While interest rates are still lower than they were four weeks ago, they are still high enough to dampen refinancing activity,” said MBA economist Joel Kan. “Only government refinancings increased slightly last week.”
Mortgage rates plummeted in the early days of the pandemic, but since the Federal Reserve started raising rates in March, mortgage rates have continued to rise on the basis of their sharp rises at the beginning of the year. less than 3% a year ago. While rising interest rates have dampened demand in the burgeoning housing market, experts say a collapse in demand won’t bring down prices quickly due to tight inventory, with some predicting that home prices will continue to rise this year.
“The homebuying market has suffered as a result of persistently low inventory and surging mortgage rates over the past two months,” Kan said. “These worsening affordability challenges have been especially tough for potential first-time homebuyers.”
Home prices have risen about 40% since the pandemic began, according to the National Association of Realtors. According to data from the Atlanta Federal Reserve, in March, the median U.S. household needed 38.6% of their income to pay for a median-priced home. This is up from 32.6% at the end of 2021 and the highest level since August 2007.
The inventory of U.S. homes for sale rose 8% in May, the first rebound since June 2019. According to Realtor.com’s monthly report, the inventory of active listings is still down 48.5% compared to May 2020, meaning that only half of the homes are still available. The national median home price also climbed to an all-time high of $447,00 last month, a 35.4% jump from a year earlier.
Mortgage rates are set to rise even higher starting this week, according to a separate survey by Mortgage News Daily. Interest rates have been in a tight range in recent weeks after clearly moving higher in previous months.
“It’s possible that the recently narrowly run range cap could end up as a cap on interest rates, but that will depend on inflation and other upcoming economic data,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. With the key U.S. CPI inflation report released, the potential for market volatility remains high.”
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