With inventory remaining tight for entry-level buyers, the average loan request hit another record high of $446,000.
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Rising mortgage rates put a damper on demand for mortgages last week, with applications from both homebuyers and homeowners looking to refinance their existing loans taking a hit, according to the latest Mortgage Bankers Association’s Weekly Mortgage Applications Survey.
Applications for purchase loans were down a seasonally adjusted 10 percent from the week before, and 12 percent from a year ago. Requests to refinance were down 7 percent week-over-week, and 52 percent from a year ago, when mortgage rates were nearly a full percentage point lower.
Joel Kan
“Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83 percent, said MBA forecaster Joel Kan, in a statement. “Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies.”
Kan said that with inventory remaining tight for entry-level buyers, the average loan request hit another record high of $446,000. There was a slight uptick in FHA and VA market share, with FHA loans accounting for 8 percent of applications, up from 7.7 percent the week before, and VA applications increasing to 10 percent of loan requests, up from 9.1 percent the week before.
Requests to refinance accounted for 56.2 percent of all applications, down from 57.3 percent the week before. Only 4.5 percent of borrowers applied for adjustable-rate mortgage (ARM) loans, unchanged from the week before.
The Mortgage Bankers Association reported average rates for the following types of loans during the week ending Feb. 4:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 3.83 percent, up from 3.78 percent the week before. Although points decreased to 0.40 from 0.41 (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 $647,200) averaged 3.62 percent, up from 3.59 percent the week before. With points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 30-year fixed-rate FHA mortgages, rates averaged 3.93 percent, up from 3.86 percent the week before. Although points decreased to 0.54 from 0.55 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 15-year fixed-rate mortgages, popular with borrowers who are refinancing, averaged 3.16 percent, up from 3.01 percent the week before. With points increasing to 0.47 from 0.41 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
- For 5/1 ARM loans, rates averaged 3.13 percent, up from 3.09 percent the week before. With points unchanged at 0.35 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
Mortgage rates have been rising as the Federal Reserve tapers its support for mortgage markets and prepares to begin raising short-term interest rates as early as next month. Some Fed policymakers are also eager to start shrinking the Fed’s balance sheet over worries about inflation.
As an emergency measure during the pandemic, the Fed was buying $80 billion in long-term Treasury notes and $40 billion in mortgage-backed securities every month, which helped push mortgage rates to record lows.
The Fed started tapering its purchases in November, a process that it accelerated in December as inflation worries mounted. On Jan. 26, the Federal Open Market Committee announced plans to buy $20 billion in Treasurys and $10 billion in mortgages in February, before ending the Fed’s asset purchases in early March.
Fannie Mae’s latest National Housing Survey showed the percentage of Americans who think it’s a good time to buy a home fell to an all-time low in January, with rising home prices and interest rates exacerbating affordability issues.
But mortgage lenders are becoming more willing to loan to “non-prime” borrowers, with home loans provided to subprime and near-prime borrowers up 17.6 percent during the third quarter of 2021, according to TransUnion.
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FAQs
For much of 2023 and 2024, that margin grew to 3 percentage points, making mortgages more expensive. Mortgage rates also move due to: Inflation: Generally, when inflation picks up, so do fixed interest rates. Supply and demand: When mortgage lenders have too much business, they raise rates to decrease demand.
Will mortgage rates go down to 3 again? ›
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
What happens to a mortgage when interest rates rise? ›
Of course, if you have a fixed-rate mortgage, the rising rate will have no impact on your loan: Your interest rate and the monthly payment will remain the same. However, rising interest rates could raise your monthly payment if you have an ARM, and fixed mortgage rates may be more expensive for new home loans.
Why are mortgage rates continuing to rise? ›
Mortgage rates may continue to rise in 2024. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022 and 2023.
Is mortgage demand declining? ›
The Mortgage Bankers Association reported this week that the number of people applying for a loan to purchase a home continues to fall. Purchase application demand is still about 5% below the spring, when rates were at about the same averages.
What happens to demand when interest rates increase? ›
Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.
How low will mortgage rates go in 2024? ›
In fourth quarter 2024 outlooks, Fannie Mae analysts anticipate 30-year rates at 6.7 percent, while the Mortgage Bankers Association predicts 6.6 percent. The National Association of Realtors projects 6.7 percent. However rates land, lower borrowing costs tend to push homebuyers to act.
Should I buy a house now or wait for a recession? ›
And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application. Even if a recession doesn't affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market.
Where will mortgage rates be in 2025? ›
There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association does predict rates on 30-year mortgages will drop to 6% by the end of 2025.
Is it better to buy a house when interest rates are high or low? ›
It depends on your personal situation. If you're comfortable with the amount of money you'll pay on a mortgage with a higher interest rate, buying may be a good choice. Consider your finances before making a decision and only buy a home if you're sure you can afford it.
So, assuming a homebuyer purchases a $400,000 residence and makes a downpayment of 20%, the difference in 30-year fixed-rate mortgage payments is about $200 per month for every 1% shift in interest rates.
Is 3.75 a good mortgage rate? ›
A 3.75 percent mortgage rate is also considered excellent in most market conditions. It's lower than most historical averages over time.
Does the president control mortgage rates? ›
When looking at the effects of an election on mortgage rates, it's important to realize: the Fed doesn't set mortgage rates. Other major factors like inflation rates and the price of US treasuries—which have been in the news of late—will dictate the housing market's interest rates nationally.
Where will mortgage rates be in 5 years? ›
• Fannie Mae: Rates Will Decline to 6.7%
The July Housing Forecast from Fannie Mae puts the average 30-year fixed rate at 6.7% by year-end, a slight decline from an average of 6.8% in the third quarter. All told, the mortgage giant predicts mortgage rates will average 6.8% in 2024 and 6.4% in 2025.
What is a good mortgage rate for 30-year fixed? ›
As of Saturday, August 10, 2024, current interest rates in California are 6.31% for a 30-year fixed mortgage and 5.75% for a 15-year fixed mortgage. The median home sale price in the state was up 11.4 percent year-over-year as of April 2024, according to the California Association of Realtors.
Does demand for money increase interest rates? ›
Economists call this the speculative demand for money. Since cash and most checking accounts don't pay much interest, but bonds do, money demand varies negatively with interest rates. That means the demand for money goes down when interest rates rise, and it goes up when interest rates fall.
What happens when demand for loans increases? ›
Changes in the demand for loanable funds
That means the demand for loanable funds will increase, which leads to a higher real interest rate. In other words, we would expect to see an increase in real interest rates, and the quantity of loans made, when the economy is doing well.
How does demand affect the housing market? ›
Key Takeaways
The housing market is a good example of how supply and demand works within an industry. When the demand for housing is high, but supply is low, home prices often rise. When there is a glut of housing available in a market, homeowners may lower their prices due to less demand in the market.
What will cause mortgage rates to fall? ›
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation cools and the Federal Reserve cuts interest rates. But until the Fed sees prolonged evidence of slowing economic growth, interest rates will stay higher.
