The average 30-year fixed mortgage rates with conforming loan balances (($726,200 or less) increased by 23bps to 6.62% in the week ended February 17th, 2023, the highest level since mid-November. Mortgage applications decreased 13.3 percent from one week earlier the MBA Weekly Mortgage Applications Survey for the week ending February 17, 2023. With yields jumping in the treasury market and following a 21bps rise in the previous week, data from the Mortgage Bankers Association (MBA) showed. The aggressive stance by the Fed in raising rates and rhetoric saw the falling yields soar again, after falling for five consecutive weeks.
Mortage rates had pulled back from highs over 7.16%, the first-time rates were that high since April 2002, according to a survey of lenders released by Freddie Mac. The surge in mortgage rates follows the Federal Reserve aggressively raising rates five times this year. Fed officials have indicated more increases are likely in the months ahead.
- The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $726,200) increased to 6.44 percent from 6.26 percent, with points increasing to 0.53 from 0.43 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
- The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 6.39 percent from 6.25 percent, with points increasing to 1.16 from 1.14 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
- The average contract interest rate for 15-year fixed-rate mortgages increased to 5.98 percent from 5.85 percent, with points increasing to 0.93 from 0.81 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
- The average contract interest rate for 5/1 ARMs increased to 5.66 percent from 5.53 percent, with points increasing to 0.97 from 0.72 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
10-year yields reverse off 4%
The Market Composite Index, a measure of mortgage loan application volume, decreased 13.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week.
The Refinance Index decreased 2 percent from the previous week and was 72 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 18 percent from one week earlier.
The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 41 percent lower than the same week one year ago.
“Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62 percent – the highest rate since November 2022. The jump led to the purchase applications index decreasing 18 percent to its lowest level since 1995,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected. The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”
Added Kan, “Refinance applications declined last week and remained more than 70 percent behind last year’s pace. Given that rates are over 2.5 percentage points higher than a year ago, we expect that refinance activity will remain depressed for some time.”
The refinance share of mortgage activity increased to 32.5 percent of total applications from 32.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.6 percent of total applications.
Higher mortgage rates make homes less affordable
Interest rates have a major influence on housing because they significantly affect a buyer’s monthly payment. 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 6.70%, 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.
The uncertainty in the economy and interest rates has widened the gap between what various lenders are offering, Freddie Mac chief economist Sam Khater said in a statement last month. “The large dispersion in rates means it has become even more important for homebuyers to shop around with different lenders.”
“If you look at the big picture of where we stand today versus where we were entering this year, we’re in a vastly different affordability environment,” said Andy Walden, vice president of enterprise research at mortgage-data firm Black Knight.
The higher rates have also made refinancings an unattractive proposition. Applications to refinance are down nearly 85% from a year ago, according to data released by the Mortgage Bankers Association. The drop-off is forcing some mortgage lenders to cut jobs or even close shop, since refinancings made up the bulk of originations during the pandemic.
The MBA expects mortgage originations to drop 48% to $2.3 trillion this year, dragged down by a 73% decline in refinancings.
Source: MBA, Freddie Mac
From The TradersCommunity News Desk