Rates Near 7% Send Applications Tumbling

Mortgage applications are yo-yoing as affordability-minded buyers respond to fluctuating rates.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — decreased by 1.6%, following the week prior’s 7.1% bump.

Adjusted purchase applications slipped by 1%, while the unadjusted index was down 1% and 14% lower YOY. 

Rates drove the downturn, as they jumped to 6.97% after three weeks of decreases. Too-hot inflation data is moving rates around, though they have mostly stayed in the mid- to high-6’s.

“Mortgage applications continued to show sensitivity to rate movements, and both purchase and refinance activity decreased over the week. With housing supply low and prices high, the average loan size for purchase applications increased to the highest level since May 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

The FOMC is meeting this week after an influx of data suggesting inflation remains too hot. The Central Bank is likely to keep rates at their current 5.25% to 5.5% benchmark in its ongoing effort to shrink inflation down to 2%.

Economists surveyed by Bloomberg largely expect three rate cuts in 2024, with the first in June, though a third of respondents are betting on two or fewer cuts.

Purchase costs are different for different types of buyers. First American recently pointed out that while annualized prices overall have fallen for two months, that isn’t the case for affordable homes. 

Prices have flatlined for mid-tier homes while starter inventory continues to see hot competition as current homeowners opt to keep their low payments rather than move up. This dynamic boxes out many first-time and low-income buyers without the benefit of equity.

Refinances fell by 3% after a decent spike last week. They accounted for 31.2% of applications and remain historically low thanks to the super-low rates many homeowners locked in during the pandemic. In the past decade, they averaged 58% of all activity.

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