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Jump in Rates Shutting Out Refi-Seekers

After a slide in mortgage application volume to close out 2021, the new year has begun on a higher note, as this week, the Mortgage Bankers Association (MBA) reported app volume increasing 1.4% week-over-week in its latest Weekly Mortgage Applications Survey for the week ending January 7, 2022.

In addition, the MBA’s Refinance Index decreased a slight 0.1% from the previous week and was 50% lower than the same week one year ago. The seasonally adjusted Purchase Index increased % from one week earlier. The unadjusted Purchase Index increased 51% compared with the previous week, and was 17% lower than the same week one year ago.

"Mortgage rates increased significantly across all loan types last week as the Federal Reserve's signaling of tighter policy ahead pushed U.S. Treasury yields higher,” said Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. “The 30-year fixed rate hit 3.52%, its highest level since March 2020. Rates at these levels are quickly closing the door on refinance opportunities for many borrowers.”

As rates rise, as Kan mentions the door is closing on prospective refi seekers, as the overall refinance share of mortgage activity decreased to 64.1% of total applications from 65.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.1% of total applications.

“Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020," said Kan.

By loan type, the FHA share of total applications increased slightly to 9.9% from 9.2% the week prior. The VA share of total applications increased marginally as well to 11.4% from 11.3% the week prior, while the USDA share of total apps remained unchanged from 0.4% the week prior.

"The housing market started 2022 on a strong note. Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9%, and VA applications increasing more than 5%,” said Kan. “MBA expects solid growth in purchase activity this year, as demographic drivers, and the strong economy support housing demand. However, the strength in growth will be dependent on housing inventory growing more rapidly to meet demand."

The nation’s housing supply remains an issue, as HouseCanary’s latest Market Pulse Report found that inventory levels dropped again In December 2021 to near record low levels. According to MLS data and public records compiled by HouseCanary, December saw 139,832 new listings across the country, a 16.6% decrease over December 2020’s totals.

Making matters worse, as the National Association of Home Builders (NAHB) has reported, over the past four months, the price of lumber has nearly tripled, thus forcing the price of an average new single-family home to rise by more than $18,600. This price hike in raw materials to build a home has added nearly $7,300 to the market value of the average new multifamily home, which translates into households paying $67 a month more to rent a new apartment. According to Random Lengths, as of December 29, the price of framing lumber topped $1,000 per thousand board feet—a 167% increase since late August.

One strong positive was the rise in employment numbers, as the U.S. Bureau of Labor Statistics (BLS) reported the addition of nearly 200,000 jobs in December.

“The Bureau of Labor Statistics reported that the American economy added 199,000 jobs in the month of December, and the unemployment rate was 3.9%, down from 4.2% in November,” said U.S. Secretary of Labor Marty Walsh. “This marks the first time unemployment has been under 4% since the pandemic began, and the largest ever one-year drop in the unemployment rate on record. With strong, steady job growth every month of the Biden-Harris Administration, we added 6.4 million jobs in 2021, reaching 84% of the jobs lost at the start of the pandemic recovered, and empowering workers to secure higher wages, especially for low wage workers.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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