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Despite Slide in Mortgage Rates, App Demand Declines

Despite mortgage rates falling slightly back last week, the Mortgage Bankers Association (MBA) reports that overall mortgage application volume decreased 1.2% from one week earlier for the week ending April 28, 2023.

The MBA’s Refinance Index increased 1% over the previous week, yet was 51% lower than the same week one year ago. The MBA’s seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 1% compared to the previous week, and was 32% lower than the same week one year ago.

“Mortgage applications decreased last week, despite rates declining slightly for the first time in three weeks. The 30-year fixed rate decreased five basis points to 6.5%, which is still 114 basis points higher than a year ago,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Elevated rates continue to both impact homebuyer affordability and weaken demand for refinancing. Home purchase activity has been very sensitive to rates and local market trends, including the very low supply of existing-home inventory. However, newly constructed homes account for a growing share of inventory, giving more options for prospective buyers.”

The MBA reports that the refi share of mortgage activity increased to 27.2% of total applications from 26.8% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.3% of total applications.

By loan type, the FHA share of total applications decreased slightly to 12.5% from 12.6% the week prior. The VA share of total applications increased slightly to 11.3% from 11.2% the week prior. The USDA share of total applications increased marginally as well, to 0.5% from 0.4% the week prior.

“The jumbo-conforming spread continues to narrow, an indication that there is reduced lender appetite for jumbo loans following the recent turmoil in the banking sector and heightened concerns about liquidity,” said Kan. “The spread was 13 basis points last week, after being as wide as 64 basis points in November 2022.”

This week, the Federal Open Market Committee (FOMC) will announce their plans for the Fed funds rate.

“The question on everyone’s mind for the May FOMC meeting is whether the Fed will announce one final rate hike before easing its foot off the pedal and keeping the fed funds rate flat for the foreseeable future,” said First American Deputy Chief Economist Odeta Kushi. “In the March Summary of Economic Projections, the terminal rate remained unchanged at 5.1%, which could be achieved with one more quarter-point hike. Markets will be watching how the Fed balances the risks of inflation and banking sector instability.”

Redfin reports that homeownership remains prohibitively expensive for many Americans, according to a new data analysis that found. In many U.S. regions, home prices haven’t fallen enough to offset the cost from higher mortgage rates that still linger far above the 6% range, meaning homeownership remains prohibitively expensive for many Americans.

LendingTree has found that although mortgage rates have fluctuated over the past several months, they remain relatively steep compared to record lows during the height of the pandemic. LendingTree analyzed mortgages offered to users of the LendingTree platform across the nation’s 50 states from Jan. 1 through March 31, 2023, and found that recent borrowers in every state can expect to spend an average of at least $1,700 a month on their monthly mortgage payments. Nationwide, the average payment on a new mortgage is $2,317 a month. Average monthly mortgage payments can range from as high as $3,696 in Hawaii to as low as $1,700 in West Virginia. Monthly mortgage payments are most expensive in Hawaii, California, and Massachusetts. In these three states, average mortgage payments are $3,696, $3,399, and $3,021, respectively. Mortgage payments are least expensive in West Virginia, Kentucky, and Michigan. Average mortgage payments in these states are $1,700, $1,711, and $1,742.

“While the 30-year, fixed mortgage rate typically follows the 10-year Treasury rate, the spread between the two widens during times of financial and geopolitical uncertainty, including in the aftermath of the Fed’s most recent aggressive rate hikes,” added Kushi. “Once the end of monetary tightening is in sight and financial conditions stabilize, the spread is likely to narrow as uncertainty eases. This should bring some much-awaited stability to mortgage rates.”

Another indicator of the Fed’s possible rate hike decision lies in the third major bank failure of the year earlier this week, as First Republic Bank, which was taken over by the Federal Deposit Insurance Corporation (FDIC) with most assets and deposits (insured and uninsured), was sold off to JPMorgan Chase. This news makes it the largest bank failure since Washington Mutual failed during the financial crisis in 2008, and also eclipses the failure of Silicon Valley Bank in March. By the numbers, as of December 31, 2022, First Republic was ranked as the 14th largest bank in the country by the Federal Reserve with assets of about $213 billion. As of April 13, First Republic had approximately $229.1 billion in assets and $103.9 billion in deposits.

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for March 2023 shows mortgage applications for new home purchases increased 0.6% compared to one year ago. Compared to February 2023, applications increased by 10% month-over-month (note that this change does not include any adjustment for typical seasonal patterns).

“Meanwhile, the housing market already looks to be on its way out of a freeze,” added Kushi. “Purchase mortgage applications and active listing inventory have been rising, though inventory remains extremely tight, and house prices reaccelerated on a monthly basis in February. Strong fundamental home buyer demand is there, the problem is finding something for sale.”

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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