Applications for mortgages tumbled 6.3% on a seasonally adjusted basis last week as potential homebuyers felt the sting of rising mortgage rates.
The Mortgage Bankers Association reported that mortgage applications are at their lowest level since the spring of 2019. Total application volume is off 41% from a year ago as the Federal Reserve’s monetary policy tightens and drives mortgage rates higher.
This week, the rate on a 30-year, fixed-rate mortgage rose above 5%. According to Mortgage News Daily, the average rate is now at 5.02% — the highest rate for a 30-year mortgage since rates crossed beyond 5% for a couple of days in 2018 and, before that, 2011.
“As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019. The refinance share of all applications dipped to 38.8%, down from 51% a year ago,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
MORTGAGE RATES CROSS 5% FOR FIRST TIME IN YEARS, HURTING AFFORDABILITY
Mortgage rates have been soaring upward since the start of the year, when it became apparent that inflation was rising fast and, as a result, the Fed would have to take a more aggressive tack in hiking its interest rate target. The central bank recently raised its interest rate target by a quarter percentage point, and a half-percentage point hike is expected after its May meeting. The Fed targets very short-term rates, but its actions indirectly influence rates on longer-term securities, such as mortgages.
The likelihood of the more aggressive rate hike occurring is pegged at more than 76%, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
New home sales fell 2% in February to 772,000, according to a report from the Census Bureau released on Wednesday. The news comes after sales dropped 4.5% in January, a larger decline than predicted.
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Inflation has been dinging consumers across the country, which has prompted the Fed to act more decisively. Consumer prices grew by 7.9% in the 12 months ending in February, the quickest pace of inflation since 1982, according to the Bureau of Labor Statistics.
