Mortgage demand at 22-year low due to higher interest rate

USA – Mortgage demand fell more than 6% over the past week, hitting its lowest level since 2000, according to the Mortgage Bankers Association’s seasonally adjusted index.

Applying for a mortgage to buy a house fell 7% for the week and was down 19% compared to the same week in 2021. Buyers have been struggling with high prices throughout the year, but with rates nearly doubling in January, they lost considerable purchasing power.

“A weak economic outlook, high inflation, and persistent affordability challenges have led to a decline in purchase activity for both traditional and government debt,” said Joel Kahn, an MBA economist.

While buyers are less affected by weekly fluctuations in interest rates, the broader picture of rising rates has already shown its impact. Mortgage rates rose again last week after falling slightly over the past three weeks.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased from 5.74% to 5.82%, up points from 0.59 to 0.65 (including principal fees) of loans down payment for 20%. The rate was 3.11% in the same week a year ago.

Demand for refinancing, which is highly rated sensitive, fell 4% for the week and was down 80% compared to the same week last year. Those applications are also at a 22-year low, but the refinancing share of mortgage activity rose to 31.4% of total applications, up from 30.8% last week due to a drop in demand from homebuyers.

Mortgage interest rates haven’t risen much this week, but that could change very soon as bond market volatility increases. The Federal Reserve is expected to raise another 75 basis points next week, and other central banks are taking similar action against inflation. One basis point equals 0.01%.

“This is especially true next week as markets digest the latest Fed policy announcement next Wednesday, but Thursday’s policy announcement from the European Central Bank is also likely to affect US rates,” said Matthew Graham, chief operating officer at Mortgage News.