Mortgage demand falls 29% from last year as interest rates eclipse 6%

Demand for mortgages appears to have nowhere to go but down, as interest rates rise.

Application volume fell 1.2% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This week’s results include an adjustment for the observance of Labor Day. Since last year, home buyers’ demand for mortgages has fallen by almost a third.

Mortgage rates, which had fallen slightly through July and August, rose once again after Federal Reserve Chairman Jerome Powell made it clear to investors that the central bank would keep a tight rein on inflation, even if it caused some pain to consumers.

The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.01% from 5.94%, with points reduced to 0.76 from 0.79 (including the origination fee) for loans with 20% down. payment.

“The 30-year fixed mortgage rate hit the 6% mark for the first time since 2008 — rising to 6.01% — essentially double what it was a year ago,” said Joel Kan, MBA’s assistant vice president for economic and industry forecasting. .

Refinancing demand fell a further 4% for the week and was 83% lower than the same week a year ago. With rates above 6%, only about 452,000 borrowers could benefit from a refinance, according to Black Knight, a provider of mortgage technology and data. This is the lowest number on record. These few remaining candidates could only save about $315 per month per borrower.

Mortgage applications to buy homes squeezed out a 0.2% gain from the previous week, but were 29% lower than the same week a year ago. There was an increase in demand for Veterans Affairs and USDA loans, which are favored by first-time buyers because they can offer low or no down payments.

“The spread between the conforming 30-year fixed mortgage rate and both ARM and jumbo mortgages remained wide last week, at 118 and 45 basis points, respectively. The wide spread underscores the volatility in capital markets due to uncertainty about the Fed’s next move,” Kan added.

Mortgage rates rose significantly higher this week, after the monthly inflation figure was higher than expected. That made investors worried that the Federal Reserve would raise interest rates more than expected at its next meeting.

“It was one of the last shoes to drop before the Fed announcement on 21 September and it came at a time when the market had fully priced in a 75bp hike but was willing to consider something even higher if the data was convincing ,” wrote Matthew Graham, CEO of Mortgage News Daily. “This was arguably convincing enough for the Fed to at least open the conversation.”