A sharp increase in mortgage interest rates is taking a toll on loan demand. The Mortgage Bankers Association says total mortgage application volume fell last week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 4.50% from 4.27%, with points rising to 0.59 from 0.54 for loans with a 20% down payment.
The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer Federal Reserve purchases of mortgage backed securities.
The number of applications to refinance a home loan, which is highly sensitive to weekly rate moves, fell from the previous week and were down from a year ago. The share of mortgage activity that was refinanced decreased from the previous week.
The number of high-quality refi candidates was already down more than 75% through last week, and these latest jumps will likely cut that population even further. This will be an important market segment for lenders, given the record $10 trillion in tappable equity available being padded even further by the still red-hot housing market.
Mortgage applications to purchase a home, which are less sensitive to weekly rate moves, fell 2% for the week and were 12% lower than a year ago. Home sales forecasts are being revised lower due to rising rates. The housing market is expensive because of a supply-demand imbalance. Affordability is weakened by rising rates.
There was a larger drop in demand for VA and FHA loans. These loans are popular with people who don't have a lot of money.
Fratantoni said that first-time homebuyers are increasingly challenged by both the rapid increase in home prices and higher mortgage rates.
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