Mortgage refinance demand plunges 14%, as interest rates spike higher

The sharp rise in mortgage rates has impacted loan demand and refinances. According to the seasonally adjusted index of the Mortgage Bankers Association, the total volume of mortgage applications fell 8.1% last Wednesday compared to the week before.

Average contract interest rates for 30-year fixed rate mortgages (with conforming loan balances of $647,200 or lower) have increased to 4.50%, from 4.27%. Points rose to 0.59, from 0.54 for loans with 20% down payments.

Mike Fratantoni is the chief economist at the MBA. He stated, “The rate increase came as the markets price in a slower pace of rate rises as well as the expectations of fewer MBS buys from the Federal Reserve.” The MBA’s latest March forecast predicts that mortgage rates will continue trending higher throughout 2022, according to Fratantoni.

Refinance applications for home loans, which are sensitive to rate movements, decreased 14% by the week before and fell 54% from one year ago. From 48.4%, the last week’s 48.4%, 44.8% now represents refinance of mortgage applications.

“The number of high-quality refi candidates was already down more than 75% through last week – these latest jumps will likely cut that population even further,” said Andy Walden, vice president of enterprise research at Black Knight. However, we have seen a decrease in overall lending activity. Cash-out lock volumes are still stronger than rate/term reis against rising interest rates. Lenders will find this market important, especially with the $10 trillion of tappable equity that is still available.

For mortgages to buy a house, which tend to be less affected by weekly rate changes, the number of applications fell 2% in the past week, and they were 12% lower last year. Rising rates are prompting economists to reduce their estimates of home sales. As a result of a rising supply-demand imbalance, the housing market has become more expensive. Inflation is increasing, which further reduces affordability.

Although overall application volumes were down, the demand for FHA loans and VA loans was much higher. This loan is popular among homebuyers with low incomes.

Fratantoni said that first-time buyers who depend on government programs are becoming increasingly troubled by the rise in house prices and rising mortgage rates.

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