Mortgage demand hit a 16-year low last week, according to the MBA.

Higher interest rates and inflation hurt homebuyers, causing mortgage demand to plummet

As a result of rising interest rates and inflation, American consumers are coming under increasing financial pressure, which is making the mortgage market’s already difficult situation much more difficult.

According to the seasonally adjusted index published by the Mortgage Bankers Association, demand for mortgages experienced a decline of more than 6 percent from the previous week to the most recent week, reaching its lowest level since the year 2000.

The number of people applying for mortgage loans to finance the purchase of a home decreased by 7 percent over the course of the past week and were 19 percent lower than they were during the same week in 2021.

The entire year, purchasers have been forced to struggle with high prices; nevertheless, with interest rates roughly double what they were in January, their purchasing power has significantly diminished.

Moving Markets

An economist for the MBA named Joel Kan stated that “Purchase activity dropped for both conventional and government loans as the worsening economic outlook, high inflation, and chronic affordability issues are influencing buyer desire.”

Although purchasers are less affected by weekly fluctuations in interest rates, the larger picture of rising rates has already taken a toll on the market as a whole. After trending marginally lower over the previous three weeks, mortgage rates surged slightly upward once more last week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.82 percent from 5.74 percent, and points increased to 0.65 from 0.59 (including the origination fee) for loans with a 20 percent down payment. These figures are all based on loans with a conforming loan balance of $647,200 or less.

When we looked back one year earlier, during the same week, that rate was 3.11 percent.

Demand for refinances, which are extremely sensitive to changes in interest rates, decreased by 4 percent over the course of the week and was 80 percent lower than it was during the same week in the previous year.

These applications are likewise at a 22-year low; but, due to a decrease in demand from homebuyers, the share of mortgage activity contributed by refinancing rose from 30.8 percent to 31.4 percent of total applications in the most recent week.

Although there hasn’t been much of a shift in mortgage interest rates so far this week, that might quickly change due to the increasing volatility of the bond market.

It is widely anticipated that the Federal Reserve would increase interest rates by an additional 75 basis points the following week. Other central banks are also likely to take similar action against inflation.
A basis point is 0.01 percent .

“This is especially true the following week as markets digest the newest Fed policy announcement the following Wednesday,” noted Matthew Graham, chief operating officer of Mortgage News Daily. “Thursday’s policy announcement from the European Central Bank could also cause enough of a stir to impact U.S. rates.”


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