Mortgage rates didn’t move at all last week, and are still sitting near a recent high. With home prices continuing to rise, that pushed more potential homebuyers to the sidelines.
Total mortgage application volume dropped 1.8% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) remained unchanged at 6.87%, with points decreasing to 0.65 from 0.66 (including the origination fee) for loans with a 20% down payment. That rate crossed over 7% a few weeks ago and has yet to retreat much.
As a result, applications for a mortgage to purchase a home dropped 3% for the week and were 23% lower than the same week one year ago, when rates were in the mid 5% range. The decline in purchase activity was driven partly by a 10% drop in FHA applications. The Federal Housing Administration, which offers low down payment loans, is favored by lower-income buyers. Clearly, the market is becoming less and less affordable for them.
“The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May,” said Joel Kan, an MBA economist, indicating that more activity is now on the higher end of the market.
Applications to refinance a home loan were essentially flat for the week and 30% lower than the same week one year ago. Most borrowers today carry interest rates far lower than the current rate and would therefore not benefit from a refinance. Those wishing to take cash out of their homes are choosing second, home equity loans rather than lose the rate on their primary loan.
Mortgage rates moved higher to start this week, crossing over 7% Tuesday to 7.04%, according to Mortgage News Daily. Rates will likely move later today, following the latest interest rate decision and press conference at the Federal Reserve. The Fed is widely expected to increase its benchmark interest rate by 0.25%.
“The Fed Funds Rate doesn’t directly dictate mortgage rates. In other words, mortgage rates CAN move lower tomorrow even if the Fed hikes. They can also move higher depending on what [Fed chief Jerome] Powell has to say about the Fed’s policy stance,” wrote Matthew Graham, chief operating officer at Mortgage News Daily..