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Affordability Issues Linger Despite Stabilization of Mortgage Rates

Freddie Mac’s latest Primary Mortgage Market Survey (PMMS), has found that the 30-year fixed-rate mortgage (FRM) averaged 3.55% for the week ending February 3, 2022, unchanged from last week.

Also this week, Freddie Mac reported the 15-year FRM averaged 2.77%, with an average 0.7 point, down from last week when it averaged 2.80%. A year ago at this time, the 15-year FRM averaged 2.21%.

“The economy lost some momentum in January, leaving mortgage rates unchanged from last week and relatively flat for the third consecutive week. This stagnation reflects the economic impact of the Omicron variant of COVID-19, which we believe will subside in the coming months,” said Sam Khater, Freddie Mac’s Chief Economist. “As economic recovery continues going into the spring and summer, mortgage rates are expected to resume their upward trajectory. In the meantime, recent data suggests that homebuyer demand continues to be elevated as supply remains low, driving higher home prices.”

Despite the low housing supply, an uptick in new construction is pushing along inventory, as homebuilders have been busy trying to make up for the lack of existing homes on the market and keep up with high demand. Redfin has found that more than 34.1% of single-family homes for sale throughout the U.S. in December were new construction, up from 25.4% a year earlier, marking the highest share on record.

Affordability for buyers remains a concern, as annual home appreciation continued an upward trajectory in December, with CoreLogic’s newest Home Price Index (HPI) and HPI Forecast for December 2021, finding that price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%.

“So far, housing data has indicated that rising mortgage rates are creating a sense of urgency, rather than deterring potential homebuyers, and prices continue to rise while the few homes available for sale are snapped up quickly,” said Realtor.com Chief Economist Danielle Hale. “These conditions can be especially challenging for first-time homebuyers already grappling with rising rents that make it difficult to save for a down payment. Against this backdrop, the homeownership rate eked out a small gain at the end of 2021, closing the year up at 65.5%. Our [Realtor.com] expectation is for homeownership to rise modestly as demographics and higher rents propel more first-time home sales despite higher housing costs in 2022.”

And despite mortgage rates nearing pre-pandemic highs, many are interested in locking in rates before their anticipated climb as 2022 continues. This week, the Mortgage Bankers Association (MBA) reported mortgage application volume rose 12% week-over-week. The MBA also reported the refinance share of mortgage activity increased to 57.3% of total applications for the week, up from 55.8% the previous week.

However, another solid report from the U.S. Department of Labor (DOL) may signal another rise in rates in the coming weeks. For the week ending January 29, the advanced figure for seasonally-adjusted initial unemployment claims was 238,000, a decrease of 23,000 from the previous week's revised level. The advance seasonally adjusted insured unemployment rate was 1.2% for the week ending January 22, unchanged from the previous week's unrevised rate. The number of seasonally adjusted unemployment claims during the week ending January 22 was 1,628,000—the lowest level for this average since August 4, 1973, when it was 1,608,750.

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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