It’s proving to be a brutal February for the mortgage industry, with mortgage demand falling for the third time in four weeks. At a time when buying activity typically increases, the latest mortgage application data is showing that mortgage demand is falling as mortgage rates climb back up.
Thank you for reading this post, don't forget to subscribe!Mortgage applications decreased by 13.3% for the week ending February 17 compared to the previous week. mortgage bankers association, Mortgage demand was down 56.8% compared to the same period last year.
Latest economic data from a solid jobs report as well as a sharp jump in retail spending and slowing deflation changed market expectations. This forced investors to place their bets that the Fed would have to keep raising its federal funds rate through the summer.
The pause is expected to come after three additional 25 bps rate hikes in June, rather than the central bank holding off on its monetary policy tightening in March.
This has led to an increase in the 10-year Treasury yield, which serves as the benchmark for mortgage rates. The 10-year Treasury yield rose to 3.95% on Tuesday from 3.77% last week.
“This time of year is typically when buying activity picks up, but rates have risen significantly over the past two weeks as financial markets move slower than expected,” said Joel Kahn, MBA vice president and deputy chief executive. Let’s digest the inflation data.” The Economist said in a statement.
The buying index had fallen 18% from a week earlier and was down 41.5% from the same period in 2022. The Ref Index declined 2% from last week and was down 72% from the same week a year ago.
rising mortgage rates
Mortgage rates across all loan types rose last week, with the 30-year fixed rate jumping 23 basis points to 6.62% – the highest rate since November 2022.
The 30-year fixed-rate mortgage with a conforming loan balance ($726,200 or less) rose to 6.62% for the week ended February 17, according to MBA, which jumped from 6.39% the previous week. Rates for jumbo loan balances (over $726,200) rose from 6.26% to 6.44% over the same period.
But housing wireK rate center, Optimal Blue data showed rates at 6.638% on Tuesday, up from 6.441% last week. But mortgage daily newsRates were even higher at 6.87%.
The share of referees in mortgage activity increased marginally to 32.5% of total applications, up from 32% last week, and adjustable-rate mortgages (ARMs) also increased to 7.6% of the total.
The FHA share decreased to 12.1% from 12.6% the previous week, while the VA share decreased from 12.6% to 12%. The USDA stood at 0.6%.
The expectation is that mortgage rates may soon rise to the 7% level, bringing rates back to November 2022 levels.
Strength Challenges and Lock in Effect
With rising rates will come the affordability rate and the “lock in” effect, economists predict.
“Many existing homeowners have mortgages with rates that are well below current market rates, which acts as a strong disincentive to move,” fannie maeThe Economic and Strategic Research Group of the U.S. said in its latest outlook.
For these reasons, LOs — including LoneDepot’s Barrett Kechian — are seeing fewer move-up buyers than before.
“Since even though they have space to reduce, unless they are absolutely booming, it is difficult to leave the 2.8% rate and trade for 5% or 6% and move to an even more expensive asset.” Kechian said.
Fannie Mae forecasts home sales this year will be about 4.67 million units before reaching 5.12 million units in 2024. Nevertheless, this pace is much slower than in recent years due to ongoing affordability challenges.
“The rise in mortgage rates has once again put many home buyers on edge, especially first-time home buyers who are most vulnerable to the challenges of affordability and the impact of higher rates,” Kahn said.
