With rising interest rates and inflation, the pain on the mortgage market is only getting worse due to which American consumers has to suffer.
Based on the Mortgage Bankers Association’s (MBA) seasonally adjusted index, mortgage demand dropped more than 6% last week as compared to previous week, hitting its lowest level since 2000.
The amount of mortgage applications submitted to purchase a home this week fell 7% from the previous week and was 19% lower than last year’s. Buyers are facing high prices all year, but since rates are nearly double what they were in January, they’re no longer able to buy much with the same amount of money.
“Purchase activity declined for both conventional and government loans as the weakening economic outlook, high inflation and persistent affordability challenges are impacting buyer demand,” MBA economist Joel Kan said.
Buying a home has gotten more expensive, with buyers less affected by smaller movements in rates, but affected more by the broad increase in rates. Last week, mortgage rates advanced again after declining slightly over the previous three weeks.
For 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less), the average interest rate went from 5.74 percent to 5.82 percent, as well as the origination points increasing from 59 to 0.65 -which includes the origination fee too, (for loans with 20% down payments). In the same week one year ago, the rate was 3.11%.
The demand for refinances, which can be highly sensitive to interest rates, dropped 4% in the past week and fell by 80% compared to the same time last year. It also has to do with the fact that the refinance share of mortgage activity has gone up to 31.4% of total applications from 30.8% last week due to the decrease in demand from homebuyers.
Interest rates on mortgages didn’t change much this week, but they might change as soon as bond market volatility increases. It is expected that the Federal Reserve will raise rates by another 75 basis points next week with other central banks taking similar steps to combat inflation. As of now, basis points are equal to 0.01%.
“This is especially true next week as markets digest the newest Fed policy announcement next Wednesday, but Thursday’s policy announcement from the European Central Bank could also cause enough of a stir to impact U.S. rates,” Matt Graham, Chief Operating Officer of Mortgage News Daily, told.