Rise in Rates Pushes Decline in Mortgage Apps

The Mortgage Bankers Association's (MBA) latest Weekly Mortgage Applications Survey has found that mortgage applications decreased 2.2% from one week earlier. The Refinance Index decreased 3% from the previous week, and was 32% lower than the same week one year ago. The seasonally-adjusted Purchase Index decreased 2% from one week earlier, as the unadjusted Purchase Index decreased 1% compared with the previous week and was 39% higher than the same week one year ago.

"After seven consecutive weeks of increasing mortgage rates, the 30-year fixed rate declined three basis points to 3.33%, which is still almost half a percentage point higher than the start of this year. Mortgage applications for refinances and home purchases both declined, but purchase activity was still convincingly higher than the pandemic-induced drop seen a year ago, as well as up 6% from the same week in March 2019," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Many prospective homebuyers this spring are feeling the effects of higher rates and rapidly accelerating home prices. Record-low inventory is pushing home-price growth at double the rate from a year ago, and even above the 10% growth rates seen in 2005. The housing market is in desperate need of more inventory to cool price growth and preserve affordability."

In terms of refi activity, the refi share of apps decreased slightly from 60.9% last week to 60.6% of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 3.4% of total applications.

"Higher mortgage rates continue to shut down refinance activity, as the pool of borrowers who can benefit from a refinance further shrinks,” said Kan.

As Kan eluded to, the rise in rates is shutting out a greater percentage of prospective homeowners looking to jump on record low rates to refinance as their window of opportunity is quickly closing.

“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power,” said Sam Khater, Freddie Mac’s Chief Economist. “Unfortunately, this has disproportionately affected the low end of the market, where supply is the slimmest.”

That supply as Khater refers to is dwindling as well with a housing inventory short on supply is being met with record-high demand as sellers continue to cash in.

Redfin recently reported median home-sale prices increasing 16% year-over-year to an all-time high of $331,590, as 39% of homes sold above their list price, also an all-time high, and 15% points higher than the same period a year earlier.

In terms of governmental breakdown, the FHA share of total applications this week decreased to 11.3% from 11.7% the week prior, and the VA share of total applications increased to 10.3% from 9.8% the week prior. The USDA share of total applications remained unchanged at 0.4% the week prior.