Mortgage Applications Down By 10% As Interest Rates Go Up

US mortgage applications dropped by 10% last week compared to the previous week. While mortgage rates continue to rise since last year, buyers are now becoming warier of higher interest rates. As a result, many are pulling back from their plans of purchasing.

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MBA Says Mortgage Applications Down By 10% Last Week

Mortgage applications to buy a new home went down by 10% last week compared to the previous one. This is according to data supplied by the Mortgage Bankers Association. Year over year, the decline in mortgage applications is now at 12%. 

In addition, the average loan size for a home purchase is now at a record high of $446,000. This indicates that the majority of buying activity right now is located at the higher end of the market.

Given the scarcity of low-cost housing, most current purchases focus on available, but more expensive housing. 

Total Home Inventory Down As Well

According to Realtor.com, another reason for the downward trend in mortgage applications is supplied. The total inventory of homes for sale dropped by 28% between January this year and last year.

Even new listings are down this month by 9%, the second straight month to do so. Many industry insiders expect the lower demand to remain in February. After all, sellers aren’t exactly rushing to place their houses into the market.

Danielle Hale, the chief economist of Realtor.com, sees frenzied buying later this year. “We’re forecasting a whirlwind year ahead for buyers,” she said.

“If January housing trends are any indication, 2022 competition is already heating up. Homes sold at a record-fast January pace, suggesting that buyers are more active than usual for this time of year.” 

Interest Rates Rose From 3.78% to 3.83%

In addition, the average contract interest rate for 30-year fixed-rate mortgages rose from 3.78% to 3.83%. This is for mortgages with conforming loan balances of $647,200 or less.

Points, including the origination fee, for loans with a 20% down payment, decreased from 0.41 to 0.40. This rate is 87 basis points lower than one year ago.

Joel Kan, MBA’s AVP for economic and industry forecasting, says that mortgage rates are attuned to Federal Reserve policy. He said that mortgage rates followed the US 10-year yield and other sovereign bonds.

However, the Federal Reserve and other central banks are now signaling their intention to remove easy monetary policies. This means they will raise interest rates and tighten the money supply. For home buyers, this means higher interest rates as well.   

Net Effect On Mortgage Applications

As a result of the changing policies, applications to refinance a home loan fell by 7%. It’s also 52% lower than the same week a year ago.

Refinancing as part of mortgage activity shrank from 57.3% to 56.2% of the total applications. With higher interest rates, the population of borrowers who can benefit from a refinance shrank dramatically. Even if many borrowers would like to refinance, the numbers just aren’t there. 

Watch the Heresy Financial video discussing that mortgage applications are dropping like a rock:

Are you interested in the housing market right now?

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• I’d like to buy a house. So far, I can’t find one that fits my location and budget requirements.
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