Applications for mortgages tumbled 13.1% on a seasonally adjusted basis last week as homebuyers began balking at rising mortgage rates.
The Mortgage Bankers Association reported that mortgage applications are at their lowest level since before the pandemic in December 2019.
“Higher mortgage rates have quickly shut off refinances, with activity down in six of the first seven weeks of 2022. Conventional refinances in particular saw a 17 percent decrease last week,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement.
“Purchase applications, already constrained by elevated sales prices and tight inventory, have also been impacted by these higher rates and declined for the third straight week. While the average loan size did not increase this week, it remained close to the survey’s record high,” he added.
HOME PRICES ROSE NEARLY 20% IN 2021, BIGGEST INCREASE IN DECADES
Mortgage rates are rising quickly as the Federal Reserve prepares for its first interest rate hikes in years to curb inflation. The central bank has been signaling it would hike rates in March for weeks, which in turn has driven demand from some homebuyers looking to lock in a mortgage before the hike actually occurs.
The average contract interest rate for 30-year fixed-rate mortgages backed by the Federal Housing Administration increased to 4.09% from 4.01%, the MBA said on Wednesday.
The news comes as home prices continue to balloon. Home prices rose by 18.8% in 2021, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index — the largest increase notched in the more than three decades that the record has been kept.
The National Association of Realtors’s housing and commercial research director, Gay Cororaton, told the Washington Examiner on Friday that mortgage rates could push as high as 4.5% by the end of the year, which makes a big difference in terms of housing affordability.
“This week’s decline in mortgage applications was expected considering that mortgage rates spiked up quickly to nearly 4%, and this is coming at a time when prices are still rising strongly at a double-digit pace, so these twin factors are causing a big impact on affordability, which is causing interested buyers who are just at the margin of being able to afford a home to pull back from the market,” Cororaton said after Wednesday’s report.
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Inflation has been painful for consumers across the country. Consumer prices grew by 7.5% in the 12 months ending in January, the fastest pace of inflation since 1982 and more than expected, according to the Bureau of Labor Statistics.
