Mortgage purchase demand fell for a second week as rates hit their highest point since last November.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – dropped by 13.3%.
The average interest rate for 30-year fixed loans rose 23 basis points to 6.62%.
Purchase demand dipped to its lowest level since 1995 as a result. Adjusted purchase applications decreased by 18%, while the unadjusted index was down 4% from the week before and was 41% lower YOY.
“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected. The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
Homebuyer demand had shown signs of life in January, increasing slowly but surely each week. But rates reversed course in February and cautious buyers turned back as well.
Fannie Mae predicted that 2023’s “surprisingly strong” start wouldn’t last, ending with a modest recession in Q2 2023.
“While some optimism appears to have crept into the housing sector, it represents an increase from very low levels of activity and is at risk of declining again if rates reverse,” said Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist.
As purchase demand waned, refinances accounted for a greater share of activity, though they remain historically low. Refinances were down 2% from the week prior and 72% lower than the same time last year, comprising only 32.5% of total applications. In the past decade, refis averaged 58% of total activity.
“Given that rates are over 2.5 percentage points higher than a year ago, we expect that refinance activity will remain depressed for some time,” Kan noted.
Other key findings include:
-The ARM share of activity rose from 6.6% to 7.6% of all applications.
-The FHA share of total applications dropped to 12.1% from 12.6%, with an average interest rate of 6.39%.
-The VA share decreased from 12.6% to 12%, and the USDA share remained unchanged at 0.6%.
-The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose to 6.44% from 6.26%, and for 5/1 ARMs rose to 5.66% from 5.53%.
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Troy Williamson, a senior loan officer at Cornerstone Home Lending, said that he is seeing the results of homebuyers flocking to the Sun Belt for warmer weather and a better quality of life. https://t.co/jJb5FseVyk
— The Mortgage Note (@TheMortgageNote) February 21, 2023
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