Bankers lower their mortgage demand outlook for the year as rising rates hurt affordability

A sign advertising home mortgage services at a Bank of America branch in Manhattan Beach, Calif.

Mortgage bankers are scaling back their expectations for the year as rising rates make it more expensive to buy a home.

Overall mortgage originations, which include refinancing loans, will decline by 35.5% from 2021, according to the Mortgage Bankers Association. The previous forecast was over $2 trillion.

The forecast from the MBA, which represents more than 2,000 companies in the industry, reflects the reality of the U.S. economy. The housing market is tight and prices are high. The Federal Reserve is raising interest rates to keep inflation in check while Americans are grappling with the hottest inflation in four decades.

Demand for refinancing has fallen sharply in the last few weeks. During the most recent week, applications to refinance a home loan fell 5%, and were 62% lower than they were a year ago, according to the MBA. The group expects the number of refinances to fall. The share of mortgage activity that was refinanced decreased last week.

Originations for purchases are expected to increase to a record of $1.72 trillion this year, but the previous forecast was for $1.77 trillion.

Even though existing sales volume will be slightly lower than last year, the continued growth in new home sales and the rapid rise in home prices should deliver a smaller, but solid, 4% annual growth in purchase volume.

The average contract interest rate for 30-year fixed-rate mortgages with a 20% down payment and conforming loan balances increased to 5.13% from 4.90%. The rate was the same a year ago.

Points increased to 0.63 from 0.53.

Mortgage rates across all loan types continued to move higher, with the 30-year fixed rate exceeding the 5% mark, the highest since November. The weekly rate of Refinance activity declined to the lowest level since the beginning of the year.

The number of mortgage applications to purchase a home rose 1% for the week but were down from a year ago. More potential buyers are looking at the lower interest rates on the variable-rate mortgage. Their share of applications last week was the highest since June.

In a promising sign of strong demand amidst affordability challenges, both conventional and government purchase applications increased.