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Erratic Mortgage Rates Jump Back Upward

And the wild zig-zag pattern ride of mortgage rates continues this week, as after a week where the 30-year fixed-rate mortgage (FRM) dipped to 5.13%, Freddie Mac’s Primary Mortgage Market Survey (PMMS) swung wildly upward this week, rising to 5.55% with an average 0.8 point as of August 25, 2022. A year ago at this time, the 30-year FRM averaged just 2.87%.

And as Sam Khater, Freddie Mac’s Chief Economist, explained, “The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market.”

And those factors are weighing heavily upon the shoulders of potential buyers, as Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) recently fell to its second-lowest reading in a decade. Surveyed consumers continue to express pessimism about homebuying conditions, with only 17% (down from 20%) of respondents reporting it’s a “Good Time to Buy a Home,” while the percentage of consumers who believe it’s a “Good Time to Sell” fell from 68% to 67%. As of July, Fannie Mae’s HPSI has declined every month since March.

“The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” said Douglas G. Duncan, Fannie Mae SVP and Chief Economist. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home. Additionally, consumers appear to be indicating that selling conditions are softening, as the ‘Good Time to Sell’ component has declined meaningfully over the past two months, and, on net, fewer consumers expect home prices to go up.”

Freddie Mac also reported this week that the 15-year FRM averaged 4.85% with an average 0.8 point, up from last week when it averaged 4.55%. A year ago at this time, the 15-year FRM averaged just 2.17%. Also this week, the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.36% with an average 0.4 point, down from last week when it averaged 4.39%. A year ago at this time, the five-year ARM averaged 2.42%.

“Home sales continue to decline, prices are moderating, and consumer confidence is low,” added Khater. “But, amid waning demand, there are still potential homebuyers on the sidelines waiting to jump back into the market.”

And of those jumping back into the market, first-time buyers are opting for governmental loans, as the Mortgage Bankers Association (MBA) reported that while overall mortgage application volume fell 1.2% week-over-week, the FHA share of total applications increased to 12.5%, up slightly from 12% the week prior. Also slightly on the rise was the VA share of total applications, which increased to 11.6%, also up from 11.2% the week prior. The USDA share of total applications also increased, albeit marginally, to 0.7% from 0.6% the week prior.

“Mortgage applications continued to remain at a 22-year low, held down by significantly reduced refinancing demand and weak home purchase activity,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Last week’s purchase results varied, with conventional applications declining 2%, and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity. The average purchase loan size continued to trend lower, as purchase activity at the high end of the market is weakening.”

And where will this roller-coaster rate ride wind up in the coming weeks? Many feel the Biden Administration’s announcement of the Student Loan Debt Relief Plan will put much needed funds back into the pockets of Americans, thus providing a slight economic respite in this time of major inflationary concern.

“Looking ahead to the remainder of 2022, consumers’ confidence and their ability to weather higher prices are key to economic activity,” noted Realtor.com Manager of Economic Research George Ratiu. “The Biden Administration’s decision to cancel $10,000 or more in student debt for millions of Americans is likely to offer a short-term boost in spending power. The savings in monthly expenses would bolster household budgets straining against rising prices and rents. Realtor.com’s latest report shows that rents have hit a new high, however, the pace of growth is moderating noticeably. In addition, construction of new multifamily buildings is picking up, pointing to an improvement in supply down the road, and offering the promise of a reprieve for weary tenants.”

Amid erratic mortgage rates and record high listing prices, one lone bright spot for today’s housing market has been the availability of more options for buyers, as the nation’s housing supply has increased as a byproduct of these factors. Zillow reports that homes lingering on the market are driving for-sale inventory up at a fast clip, with inventory up 5.1% on a monthly basis, yet new inventory fell 13.6% month-over-month in July. Compared to July 2019, 15.5% fewer new listings came on the market.

“For homebuyers, today’s housing market is offering more options and a growing number of homes with price reductions,” said Ratiu. “However, after a few months of improving new listings we are seeing a pullback in fresh inventory, which is worrying. Amid clear signs that affordability is curbing demand, some homeowners may fear that they missed the market’s peak. With real estate markets still contending with significant underbuilding, compounded by construction companies slashing single-family starts, the transition toward balance is losing steam. In turn, affordability continues to be a challenge for many buyers in the market. For someone looking at a median-priced home, today’s rate translates into a $2,050 monthly payment, a 61% jump from a year ago.”

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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