Mortgage Demand Hits 27-Year Low as Rates Increase


The Numbers

Mortgage demand has reached its lowest point in 27 years as homeowners are hesitant to refinance amidst rising rates.

According to the Mortgage Bankers Association (MBA), the demand for mortgages is currently at its lowest level since 1996, with the average 30-year rate rising to 7.27%.

While there has been an increase in purchase applications, refinancing activity has seen a sharp decline. As a result, the market composite index, which measures mortgage application volume, has fallen to 182.2, marking a 0.8% decrease from the previous week and a significant drop from last year’s index of 255.

Key Details

In light of rising rates across the board, mortgage applications have fallen for the seventh time in eight weeks.

However, there is still some activity from buyers. The purchase index, which measures mortgage applications specifically for home purchases, has risen by 1.3% compared to the previous week.

On the other hand, few homeowners see this as an opportune moment to refinance. The refinance index has dropped by 5.4%, reaching its lowest level since January.

For homes sold at $726,200 or less, the average contract rate for a 30-year mortgage stands at 7.27% as of the week ending September 8. This represents an increase from the previous week’s rate of 7.21%, as reported by the MBA.

Additionally, the rate for jumbo loans, which are for homes sold for over $726,200, has reached 7.25%, up slightly from 7.21% the previous week.

Meanwhile, the average rate for a 30-year mortgage backed by the Federal Housing Administration has risen marginally to 7.04% from 7.03%.

Rise in Mortgage Rates

The mortgage rates have increased slightly, with the 15-year rose to 6.72% from 6.66% in the previous week. Meanwhile, the rate for adjustable-rate mortgages has also risen from 6.33% to 6.59%.

Housing Market Diversion

Recent data suggests that the housing market may have diverged during the summer, presenting more incentives for buyers to return compared to homeowners looking to refinance.

Increase in Inventory

One possible reason for the surge in purchase applications could be attributed to an unusual uptick in inventory. Buyers are taking advantage of new options as new listings rose by 4% in July, resulting in nearly 350,000 for-sale listings across the U.S.

Existing Homeowners Unaffected

Existing homeowners, on the other hand, are not affected by the inventory issue and have very little motivation to refinance at higher rates.

Minimal Refinance Activity

According to Joel Kan, deputy chief economist and vice president at the Mortgage Bankers Association (MBA), the high current rates contribute to minimal refinance activity. Homeowners have reduced incentives to sell their current homes and buy new ones at higher interest rates.

Market Reaction

In early morning trading Wednesday, the yield on the 10-year Treasury note was below 4.3%, indicating potential market fluctuations.

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