The average 30-year fixed mortgage rates hit 6.25% for the first-time since October 2008 last week, according to the Mortgage Bankers Association from 6.01% last week, essentially double what it was a year ago. Rates rose sharply after the higher-than-expected CPI and in front of the next FOMC expecting to rise another 75 bps.
The Mortgage Bankers Association showed mortgage applications in the US jumped in the week showed a 3.8% rise following the prior week’s 1.2% decrease, off the lowest since 2018. Higher mortgage rates have pushed refinance activity down more than 80 percent from last year.
Mortgage Bankers Association for week ending 16 September 2022
- MBA mortgage applications +3.8% vs -1.2% prior
- Market index 264.7 vs 255.0 prior
- Purchase index 200.1 vs 198.1 prior
- Refinancing index 588.1 vs 532.9 prior, still 82.7% lower than a year ago.
- 30-year mortgage rate 6.25% vs 6.01% prior
- 15-year fixed-rate mortgages average 5.40% from 5.30%
- Average contract interest rate for 5/1 ARMs 5.14% from 4.83
- Refinance share of mortgage activity increased to 32.5 percent of total applications from 30.2 percent the previous week.
- The adjustable-rate mortgage (ARM) share of activity remained unchanged at 9.1 percent of total applications.
Higher mortgage rates make homes less affordable
Cost of borrowing to buy a house in an already been a pricey housing market. Before the Fed’s hikes the average fixed rate on a 30-year mortgage recently rose to 6.02%, from 4.16% the week of March 17, and additional rate increases would likely push mortgage rates even higher.
Rising rates translate to hundreds of dollars more in a monthly mortgage payment. The median home price reached $403,800 in July, according to data from the National Association of Realtors. Putting a 20% down payment on such a home and taking out a 30-year mortgage with a 6% rate will now pay around $2,400 a month. The same purchase six months ago, would mean monthly payments nearly $250 less.
““Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike. Mortgage rates followed suit last week, increasing across the board, with the 30-year fixed rate jumping 24 basis points to 6.25 percent – the highest since October 2008,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
“As with the swings in rates and other uncertainties around the housing market and broader economy, mortgage applications increased for the first time in six weeks but remained well below last year’s levels, with purchase applications 30 percent lower and refinance activity down 83 percent. The weekly gain in applications, despite higher rates, underscores the overall volatility right now as well as Labor Day-adjusted results the prior week.””
- The Market Composite Index, a measure of mortgage loan application volume, increased 3.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 14 percent compared with the previous week.
- The Refinance Index increased 10 percent from the previous week and was 83 percent lower than the same week one year ago.
- The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 30 percent lower than the same week one year ago.
The spread between the conforming 30-year fixed mortgage rate and both ARM and jumbo loans remained wide last week, at 118 and 45 basis points, respectively. The widespread underscores the volatility in capital markets due to uncertainty about the Fed’s next policy moves.” Joel Khan
- The Federal Housing Administration (FHA) share of total applications decreased to 13.3 percent from 13.4 percent the week prior.
- The United States Department of Agriculture (USDA) share decreased to 0.6 percent from 0.7 percent the week prior.
- The Veterans Affairs (VA) share of total applications decreased to 10.9 percent from 11.3 percent the week prior.
Things are different to the 2008 bubble pop however, total mortgage debt in the United States is now less than 43% of current home values, the lowest on record. Negative equity is virtually nonexistent, compare that to the more than 1 in 4 borrowers who were under water in 2011. Just 2.5% of borrowers have less than 10% equity in their homes.
In 2007, just before the housing market crash, there were 13.1 million ARMs, representing 36% of all mortgages, this week it was 9.1%
This year’s surge in mortgage rates was hardly unforeseen, given the record lows reached in the pandemic period and concerns about high U.S. inflation readings, but it has unfolded faster than many expected. At the beginning of the year, the average rate on America’s most popular home loan was 3.22%.
A 22yr low in MBA refinancings as a % of total Mortgage applications
Higher mortgage rates typically slow home-buying activity, but the number of applications. Expectations that the Federal Reserve will raise interest rates several more times this year to control inflation are driving up mortgage rates. Home prices continue to push homeownership out of the question for many Americans.
Rising rates are reducing home-loan refinancings, which powered much of the mortgage market’s boom in 2020 and 2021. About four million refinancings were expected to make up 33% of mortgage originations this year, down from 59% in 2021, according to the Mortgage Bankers Association.
The survey covers over 75 percent of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100.
From The TradersCommunity News Desk