Rise in Rates Hampers Mortgage Apps

After a one-week return to positive territory, the Mortgage Bankers Association (MBA) reports that mortgage applications decreased 8.8% from one week earlier, for the week ending April 14, 2023.

The MBA’s Refinance Index decreased 6% from the previous week, and was 56% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10% from one week earlier. The unadjusted Purchase Index decreased 9%, compared to the previous week, and was 36% lower than the same week one year ago.

“Last week’s increase in mortgage rates prompted a pullback in application activity. With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes. The 30-year fixed rate increased 13 basis points to 6.43%, which led to purchase applications declining 10%,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Affordability challenges persist, and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act. The 10-percent drop in FHA purchase applications, and the increase in the average purchase loan size to its highest level in a month, are other indications that first-time buyers have pulled back. The spread between the jumbo and conforming 30-year fixed rates widened slightly last week to 15 basis points, but this was a much tighter spread compared to the past year. As banks reduce their willingness to hold jumbo loans, we expect this narrowing trend to continue.”

The refinance share of mortgage activity increased slightly to 27.6% of total applications, up from 27% the previous week, while the adjustable-rate mortgage (ARM) share of activity increased to 6.3% of total applications.

“Refinances also declined and accounted for just over a quarter of all applications, as rates remained more than a full percentage point above the same week a year ago,” added Kan. “This leaves very little refinance incentive for most homeowners.”

By loan type, the FHA share of total applications increased to 12.7% from 12.3% the week prior. The VA share of total applications decreased to 11.7% from 12.8% the week prior. The USDA share of total applications remained unchanged at 0.5% from the week prior.

Another aspect factoring into the sluggish spring homebuying season is single-family home prices, which Fannie Mae reports increased at a non-seasonally adjusted annual rate of 4.7% from Q1 2022 to Q1 2023, down from the previous quarter's revised annual growth rate of 8.6%, according to the latest Home Price Index (HPI) reading, a national, repeat-transaction home price index measuring the average, quarterly price change for all single-family properties in the United States—excluding condos. On a quarterly basis, home prices rose a seasonally adjusted 1% in Q1 2023, above the 0.0% growth seen in the prior quarter. On a non-seasonally adjusted basis, home prices also increased by 1% in Q1 2023.

"As expected, the annual rate of increase in home prices has slowed dramatically in response to the rapid and significant increase in interest rates," said Douglas G. Duncan, Fannie Mae SVP and Chief Economist. "Still, the fact that prices rose slightly in the first quarter is evidence of significant pent-up mortgage demand, despite ongoing affordability constraints. Even though mortgage rates remain elevated compared to the previous few years, the acute lack of housing supply remains supportive of home prices. Of course, the shortage of homes for sale is currently being exacerbated by the so-called 'lock-in effect,' which continues to disincentivize huge numbers of households with low mortgage rates from listing their homes."

Redfin reports that the pool of homes available to homebuyers is shrinking quickly because new listings are scarce, as new listings fell 21.8% from a year earlier nationwide during the four weeks ending April 2, one of the biggest drops since the start of the pandemic, also contributing to an unseasonal early-spring decline in the total number of homes for sale.

“Shiny new listings are getting multiple offers and selling fast. The caveat is that they have to be priced correctly from the beginning,” Redfin Real Estate Agent Stephanie Collins said. “One of my buyers recently made an offer on a move-in ready home in a popular area. The home was priced right in line with the market at $520,000; it received eight offers and went for $560,000 to a competing buyer. That same client just had an offer $35,000 over asking price accepted in the same neighborhood. Sellers are hesitant, partly because it’s not spring 2022 anymore.  I’m reminding potential sellers that buyers are out there, and some homes have bidding wars–they just need to price a bit lower than they would have a year ago.”