Rising rates sent mortgage applications spiraling last week, sidelining homebuyers and forcing refis to a standstill.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – decreased by 10.6%, piling onto the week prior’s 2.3% dip.
Adjusted purchase applications slipped by 10%, while the unadjusted index was down by 6% and was 13% lower YOY.
Rates shot up to 7.06% on the heels of less-than-ideal inflation data from January. The Fed’s preferred inflation index came in hotter than expected for January, and Wall Street pared back its bets on rate cuts from the Central Bank, now predicting they won’t come until at least May.
“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” Quincy Krosby, chief global strategist at LPL Financial, said. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”
The result was fewer applications, with an especially big dip for refinances, which were down by 11% and accounted for 32.6% of applications. They had seen some movement while rates retreated in the first weeks of the year, but remained historically low. In the past decade, they averaged 58% of all activity.
“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” said Mike Fratantoni, MBA’s SVP and Chief Economist.
Buyers are beginning to see the light at the end of the tunnel and expect rates to decline in the next twelve months. But for now, with the cost of a home soaring, any upward change in rates is likely to kill a deal. Prices rose by 6.7% YOY in January, the biggest increase in a year.
At the same time, new listings fell 1.2% from December after seasonal adjustment, the first drop since June.
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