Homebuyer mortgage demand falls to lowest level since 1995

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Homebuyer demand for mortgages declined again last week to the lowest level in nearly 30 years, as interest rates continued to climb to new post-pandemic highs on fears that untamed inflation will force the Federal Reserve to adopt a “higher for longer” rate-hike strategy.

A weekly survey of lenders by the Mortgage Bankers Association found applications for purchase mortgages were down by a seasonally adjusted 5 percent compared to the week before and 30 percent from a year ago.

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Joel Kan

“Applications for home purchase mortgages dropped to their lowest level since April 1995, as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” MBA Deputy Chief Economist Joel Kan said in a statement. “Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing.”

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It was the sixth consecutive decline in demand for purchase loans as measured by an MBA index that includes an adjustment to account for seasonal changes in demand.

Existing-home sales dipped by a seasonally adjusted 2.2 percent from June to July and were down 16.6 percent from a year ago, according to data released Tuesday by the National Association of Realtors.


Lawrence Yun

“Two factors are driving current sales activity – inventory availability and mortgage rates,” NAR Chief Economist Lawrence Yun said in a statement. “Unfortunately, both have been unfavorable to buyers.”

Kan said adjustable-rate mortgages accounted for 7.6 percent of loan applications last week, the highest level in five months.

“Some homebuyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period,” Kan said.

Mortgage rates hit new post-pandemic highs

Mortgage rates have reached levels not seen since December 2020, according to MBA surveys going back to 1990.

Black Knight’s Optimal Blue Mortgage Market Indices, which have tracked daily rate lock data since 2017, shows rates on 30-year fixed-rate conforming mortgages hitting 7.30 percent Tuesday, the highest recorded by the survey. Rates for jumbo loans too big for purchase by Fannie Mae and Freddie Mac also hit a new post-pandemic high of 7.52 percent on Tuesday, Optimal Blue data shows.

Rates are surging as Federal Reserve policymakers prepare to gather in Jackson Hole, Wyoming, this week to assess how much of an impact the 11 interest rate hikes the Fed has instituted since March 2022 are having on inflation.

Powell, who’s scheduled to outline the Fed’s latest thinking in a speech Friday, used last year’s Jackson Hole conference to issue a warning that the Fed was determined to get inflation under control despite the pain higher rates were likely to inflict.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said at the time when the Fed was still in the opening stages of its rate-hike campaign. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

In their Aug. 23 U.S. Economic Monitor bulletin, economists at Pantheon Macroeconomics said they don’t expect Powell to break with past assurances that the Fed is now data-dependent and will make decisions on a meeting-by-meeting basis.

“Policy is tight, but policymakers are not yet sure that it is tight enough,” Pantheon economists wrote. “Chair Powell is dealing with an increasingly split committee, and he is a consensus-builder who is unlikely to use this speech as an opportunity to try to shift market perceptions of the Fed’s position.”

Pantheon economists attribute the recent rise in long-term interest rates after the Fed’s last rate hike mostly to stronger-than-expected economic growth. But Pantheon expects that the next data surprises “likely will be to the downside,” providing leeway for rates to come back down.

Pantheon is forecasting that yields on 10-year Treasury notes, a barometer for mortgage rates, will dip to 3.60 percent by the end of the year. That would represent a 70 basis-point decline from the 52-week high of 4.36 percent registered Tuesday. But it’s a less dramatic drop than Pantheon’s previous forecast that 10-year yields would fall to 3.10 percent by the end of the year.

“Fundamentally, we remain optimists because we don’t buy either the indefinite-robust-growth story, implying the economy is impervious to … Fed tightening, or the sticky inflation story, which requires permanently elevated margins,” Pantheon economists said.

Futures markets tracked by the CME FedWatch Tool put the odds of another Fed rate hike on Sept. 20 at only 11 percent, and that investors have priced in a 41 percent chance that the Fed will have begun to lower rates by March as the spring homebuying season approaches.

For the week ending Aug. 11, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 7.31 percent, up from 7.16 percent the week before. With points increasing to 0.78 from 0.68 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 7.27 percent, up from 7.11 percent the week before. With points increasing to 0.84 from 0.55 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 7.09 percent, up from 6.93 percent the week before. With points increasing to 1.20 from 1.17 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing averaged 6.72 percent, up from 6.57 percent the week before. With points increasing to 1.06 from 0.94 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.50 percent, up from 6.20 percent the week before. Although points decreased to 1.03 from 1.45 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.

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