Mortgage demand from homebuyers falls by 10% when interest rates rise
Houses in Centreville, Maryland, U.S., on Tuesday, April 4, 2023.
Nathan Howard | Bloomberg | Getty Images
Today’s homebuyers seem increasingly sensitive to weekly movements in mortgage rates. While property prices are softening somewhat, affordability is still a major hurdle, especially as more first-time buyers enter the market.
Last week, the average contract rate on 30-year fixed-rate mortgages with matching loan balances ($726,200 or less) rose to 6.43% from 6.30% the previous week, with points falling from 0.55 (including the setup fee) to 0, 63 rose loans with 20% down payment.
As a result, home-buying mortgage applications fell 10% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Buyer demand was 36% lower than the same week a year ago when the 30-year fixed rate mortgage averaged 5.20%.
“Affordability issues remain and there is limited inventory for sale in many markets across the country, leaving buyers choosy when trading,” wrote Joel Kan, MBA’s chief economist, in a press release. “The 10 percent drop in FHA purchase applications and the rise in average loan size to its highest level in a month are further signs that first-time buyers have pulled out.”
But wealthier buyers may also face new difficulties when it comes to credit. Banks had been offering better rates on jumbo loans, but the spread between jumbo and conforming loans is much narrower now than it was last year. This has to do with the recent collapses of regional banks that have impacted the industry.
“As banks reduce their willingness to hold jumbo loans, we expect this tightening trend to continue,” Kan added.
Applications to refinance a home loan were down 6% from the previous week and 56% lower than a year ago. The refinancing share of mortgage activity increased to 27.6% of all applications from 27.0% in the previous week.
Mortgage rates rose sharply earlier this week, according to another Mortgage News Daily interest rate survey. Nevertheless, interest rates have been recovering between 6% and 7% for several months. Potential homebuyers may be getting used to seeing higher interest rates now, but home prices haven’t corrected enough to bring affordability back to earth.