Purchase loan applications continue to be weaker “due to the combination of much higher mortgage rates and the worsening economic outlook,” said MBA forecaster Joel Kan.
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Interest in refinancing picked up slightly last week but was outweighed by another drop in purchase loan demand, according to the results of a weekly survey of lenders by the Mortgage Bankers Association.
The MBA’s Weekly Mortgage Applications Survey shows purchase loan requests were down by a seasonally adjusted 4 percent week-over-week and 18 percent from a year ago.
Although requests to refinance were up 2 percent from the previous week, demand for refinancing was down 80 percent from a year ago, with rates on 30-year fixed-rate loans up 2.65 percentage points over that time. The end of the refi boom has mortgage lenders scrambling to boost their purchase loan business and a number have downsized as the profitable refinancing business dries up.
The drop in purchase loan activity dragged the MBA Market Composite Index, a measure of total mortgage loan application volume, down for the second week in a row by a seasonally adusted 1.7 percent when compared to the week before.
Joel Kan
“Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook,” said MBA forecaster Joel Kan in a statement. “After reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market.”
A record 81 percent of consumers surveyed by Fannie Mae in June said the economy is on the wrong track, and about half said they thought that it would be “difficult” to get a mortgage — the highest percentage since 2014. But the survey also found that the share of consumers who think it’s a good time to buy ticked up slightly in June.
Mortgage rates have been on the rise this year as the Federal Reserve tightens monetary policy to fight inflation, but recently plateaued after hitting a 2022 peak of 6.06 percent on June 14, according to the Optimal Blue Mortgage Market Indices.
Mortgage rates plateau
The Fed has raised the federal funds rate three times since March 17 by a total of 1.5 percentage points, with half of that increase implemented in June when Fed policymakers ordered the largest bump in 28 years.
Bond market investors will be looking for clues as to whether the Fed will continue to pursue its aggressive inflation-fighting strategy at its next meeting, which concludes July 27. Minutes of the committee’s June meeting suggest that policymakers are ready to take an even more aggressive stance if inflation continues to run hot.
The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows bond traders are almost certain the Fed will implement another 75 basis-point rate hike on July 27.
During the week ending July 8, the MBA reported average rates for the following types of loans:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less) rates averaged 5.74 percent, unchanged from the week before. With points decreasing to 0.59 from 0.65 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 5.25 percent, down from 5.28 percent the week before. With points decreasing to 0.38 from 0.44 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- For 30-year fixed-rate FHA mortgages, rates averaged 5.49 percent, down from 5.60 percent the week before. Although points increased to 1.08 from 0.89 (including the origination fee) for 80 percent LTV loans, the effective rate still decreased.
- Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing averaged 4.93 percent, down from 4.96 percent the week before. Although points increased to 0.72 from 0.68 (including the origination fee) for 80 percent LTV loans, the effective rate still decreased.
- For 5/1 adjustable-rate mortgages (ARMs), rates averaged 4.71, up from 4.62 percent the week before. With points increasing to 0.77 from 0.72 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
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FAQs
Inflation: Generally, when inflation picks up, so do fixed interest rates. Supply and demand: When mortgage lenders have too much business, they raise rates to decrease demand.
What happens to interest rates as demand for loans increases? ›
The current price of goods might skyrocket by the time the borrower pays it back. This will reduce the lender's purchasing power. When the demand for credit is high, so are interest rates. Alternatively, when the demand for credit is low, interest rates will decrease.
Is a recession a good time to refinance your home? ›
Many homebuyers may feel that taking out a mortgage during a recession is too risky. While recessions are short term pauses in an otherwise expanding economy, they affect real estate markets and interest rates. However, this pause may be a good time to buy or refinance a home.
Will mortgage rates ever be 3% again? ›
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future. This is due to a combination of factors, including: Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it.
Does higher demand mean higher interest rates? ›
An increase in money demand due to a change in expectations, preferences, or transactions costs that make people want to hold more money at each interest rate will have the opposite effect. The money demand curve will shift to the right and the demand for bonds will shift to the left.
Does demand for money increase interest rates? ›
Economists call this the speculative demand for money. Since cash and most checking accounts don't pay much interest, but bonds do, money demand varies negatively with interest rates. That means the demand for money goes down when interest rates rise, and it goes up when interest rates fall.
What happens to borrowing when interest rates are high? ›
Higher interest rates can make borrowing money more expensive for consumers and businesses, while also potentially making it harder to get approved for loans. On the positive side, higher interest rates can benefit savers as banks increase yields to attract more deposits.
What is the effect of interest rates on demand? ›
Higher interest rates work to reduce inflation by dampening demand in the economy, making it more attractive to save and less attractive to borrow. One result of this is reductions in spending and employment by households and businesses.
When interest rates are high, what is the demand for borrowing money? ›
So, the demand for money falls. The higher interest rate increases the cost of borrowing, which in turn discourages people from taking loans and investing.
Is 2024 a good time to refinance your home? ›
Still, it's worth thinking through the possibilities. Currently, the MBA predicts the average 30-year mortgage rate will reach 6.1% by the end of 2024. Other industry projections range from 6% to 7%, so the potential for bigger savings is there.
In summary though, stock market crashes tend to be good for the mortgage industry overall, as they result in lower rates and an immediate upswing in refis.
Why would anyone refinance right now? ›
A general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that's at least 1% lower than the one you currently have. During the pandemic, mortgage interest rates hit historic lows and a rush of homeowners were able to refinance with lower interest rates.
How low will mortgage rates go in 2024? ›
Mortgage rate predictions 2024
The MBA forecast suggests that 30-year mortgage rates will fall to the 6.6% by the end of 2024, while Fannie Mae and NAR predict rates will end the year around 6.7%.
What are mortgage rates expected to be in 2025? ›
Mortgage Rates Prediction For 2024 and 2025
Freddie Mac anticipates that mortgage rates will ease in 2024 and fall below 6.5% in 2025, potentially triggering a wave of refinancing activity. High mortgage rates have slowed the U.S. real estate market in 2024, resulting in fewer home sales and reduced affordability.
Will home equity rates go down in 2024? ›
Experts largely agree that home equity loan rates — and all kinds of mortgage rates, for that matter — will drop in 2024. They're just not sure how far. For the most part, that will depend on how far the Fed goes on its rate drops.
What is causing mortgage rates to go up? ›
Inflation influences how lenders set their mortgage rates. Consumers are likely to borrow more during periods of economic growth, which often leads to higher interest rates. Although the Fed doesn't set them, mortgage rates are impacted by the Fed funds rate.
How does real interest rate affect demand? ›
There is an important implication of that first determinant of investment demand: real interest rates are procyclical. When the economy is doing well, the rate of return on any investment spending will increase. That means the demand for loanable funds will increase, which leads to a higher real interest rate.
How does demand affect the housing market? ›
Real estate follows the law of supply and demand: When there are more buyers than properties for sale, prices rise. Tip the balance the other way, and prices go down. It's easy to see this in operation.
How does a job report affect mortgage rates? ›
How will employment data affect housing demand and home prices? Labor market data not only affects the Fed's interest rate adjustments and investor behavior. Employment and wage levels also affect the demand for homes, which can influence mortgage rates and home prices.
