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Hike in Rates Drives Down Mortgage Apps

As mortgage rates rose last week after three weeks of stability, mortgage applications continue to drive further downward, as the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association (MBA) dropped 5.4% week-over-week, for the week ending February 11, 2022.

The MBA’s Refinance Index dropped 9% from the previous week, and stood 54% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1% from one week earlier, as the unadjusted Purchase Index increased 5% compared to the previous week, and was 7% lower than the same week one year ago.

The refinance share of overall mortgage activity decreased to 52.8% of total applications from 56.2% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5% of total applications.

"Mortgage rates increased across the board last week following the recent rise in Treasury yields, which have moved higher due to unrelenting inflationary pressures and increased market expectations of more aggressive policy moves by the Federal Reserve," said Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. "The 30-year fixed rate saw the largest single-week increase since March 2020 and was above the 4% mark for the first time since 2019. Consistent with this period of higher mortgage rates, refinance applications fell 9% last week, and stood at around half of last year's pace. The refinance share of applications was also at its lowest level since July 2019."

As rates rise and applications dip, buyers are still sifting through the limited supply of homes available, as Redfin recently reported, during the four weeks ending February 6, active listings—defined as the number of homes listed for sale at any point during the period—fell 29% year-over-year, dropping to an all-time low of 440,000. Listings were down 50% from the same period in 2020.

Buyers, fearful of a new ascension in mortgage rates, were wasting no time in snatching up the homes available, as Redfin reported 55% of homes that went under contract had an accepted offer within the first two weeks on the market, above the 49% rate of a year earlier, and 41% in 2020. Also, 43% of the homes that went under contract had an accepted offer within one week of hitting the market, up from 37% during the same period a year earlier and 29% in 2020—a record high for the measure.

"Purchase applications saw a modest decline over the week, with government purchase applications accounting for most of the decrease,” said Kan. “Prospective buyers still face elevated sales prices in addition to higher mortgage rates. The heavier mix of conventional applications again contributed to another record average loan size at $453,000."

Also contributing to the drop in mortgage application volume is the rise in the median asking price of $376,000 recorded during the four weeks ending February 6, marking an all-time high. Higher prices are also forcing up the average estimated monthly mortgage payment, as a mortgage on a typical home for sale rose 25% year over year to a record $1,931. These numbers were based on the all-time high median asking price of $376,000 and an average 30-year mortgage rate of 3.69%.

By loan type, the MBA reported that the FHA share of total applications increased slightly to 8.3% from 8% the week prior. The VA share of total applications decreased 0.7% to 9.3% from 10% percent the week prior. Remaining unchanged was the USDA share of total applications, holding steady at 0.4% from the week prior.

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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