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Mortgage demand falls as rates soar past 6%

The market composite index fell 1.2% for the week ending Sep. 9

Demand for mortgage loans declined last week as mortgage rates reached their highest level since 2008, crossing the 6% threshold. 

The market composite index, a measure of mortgage loan application volume by the Mortgage Bankers Association, fell 1.2% for the week ending Sep. 9, compared to the previous week. It was also down 64% compared to the same week in 2021.  

The refinance index had a 4.2% decline from the previous week and fell 83% from the same week in 2021. Meanwhile, according to the MBA, the purchase index was down 0.15% from the previous week and decreased 28% from the same week in 2021. 

“The 30-year fixed mortgage rate hit the 6% mark for the first time since 2008, which is essentially double what it was a year ago,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement. “Higher mortgage rates have pushed refinance activity down more than 80% from last year and have contributed to more homebuyers staying on the sidelines.”

Due to the Federal Reserve’s aggressive tightening monetary policy to combat persistent inflation, the housing market is expected to cool down. 

The Consumer Price Index (CPI) rose 0.1% from the month in August, after remaining unchanged in July, the Bureau of Labor Statistics reported on Tuesday. From a year earlier, prices rose 8.3%, a slight deceleration from July, driven primarily by the recent declines in gasoline prices. 

Fraud risk continues to rise even as the market contracts 

According to a Q2 analysis by FundingShield, there was a 40.69% increase in wire-related issues compared to Q1 2022. Among today’s lower volumes, the need to keep costs down while still managing risks has never been greater. 

Presented by: FundingShield

The hotter-than-expected inflation level ensures that the Fed will hike interest rates aggressively at its upcoming September meeting to tamp down inflation. Another 75 basis point hike could even be on the cards in October.

Consequently, mortgage rates surged on Tuesday. The 30-year fixed rate was at 6.28%, up 30 basis points from Monday, according to Mortgage News Daily.

According to the latest survey from Freddie Mac, the 30-year fixed-rate mortgage rose last week to an average of 5.89%, up from the previous week’s 5.66%. The index compiles only purchase mortgage rates reported by lenders during the past three days.    

MBA’s estimate, however, indicated the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 6.01% this week to the highest level since 2008, from the previous week’s 5.94%. Jumbo mortgage loans (greater than $647,200) increased to 5.56% from 5.46% in the same period. 

The MBA data shows the refinance share of all mortgage activity fell marginally to 30.2% of total applications this week from the previous week’s 30.7%. 

The Federal Housing Administration’s (FHA) share of total applications increased to 13.4% from the previous week’s 13.3%. The Veterans Affairs’s (VA) share of applications rose to 11.3%, from 10.8%, and the United States Department of Agriculture’s (USDA) share went from 0.6% to 0.7%. 

The share of adjustable-rate mortgages (ARM) applications increased to 9.1% this week, from 8.5% of total applications last week. According to the MBA, the average interest rate for a 5/1 ARM increased to 4.83% from 4.81% a week prior. 

“The spread between the conforming 30-year fixed mortgage rate and both ARM and jumbo loans 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 policy moves,” Kan said.

The survey, conducted weekly since 1990, covers 75% of all U.S. retail, residential mortgage applications.

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