Soaring interest rates cause demand for mortgages to drop more than 40% from a year ago

Saul Loeb | AFP | Getty Images

Rising interest rates are crushing the mortgage market as few homeowners can now qualify for refinancing and more potential buyers become unaffordable.

Total mortgage application volume fell another 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was down 41% from the same week a year ago.

The average contractual interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) fell from 4.80% to 4.90%, with points rising from 0.56 at 0.53 (including origination fees) for loans with a 20% decline. Payment. This rate was only 3.36% a year ago. This is the fourth consecutive week of increases.

Home loan refinancing applications, which have been falling steadily for months, fell another 10% week after week. Refinancing demand was 62% lower than the same week a year ago.

“Mortgage application volumes continue to fall due to rapidly rising mortgage rates as financial markets expect significantly tighter monetary policy in the coming months,” said Joel Kan, an economist at MBA. “As higher rates reduce the incentive to refinance, the volume of applications has fallen to its lowest level since the spring of 2019.”

The refinance share of all applications fell to 38.8% from 51% a year ago.

Mortgage applications for buying a home were down 3% for the week and were 9% lower than the same week a year ago. A strong job market with continued wage growth is keeping housing demand high, but the supply of existing homes for sale remains extremely tight. Bidding wars tend to be the rule rather than the exception. Affordability is falling rapidly and first-time buyers are being sidelined.

“The high average size of purchase loans and the steeper 8% decline in FHA purchase applications both indicate that first-time buyers are disproportionately affected by supply and affordability issues,” Kan added.

Declining mortgage business is driving layoffs at companies like Movement Mortgage and Better.com. Mortgage companies had seen massive hiring in the first year of the Covid pandemic as interest rates soared to more than a dozen record highs and demand for refinancing and purchases increased.

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