MortgageMortgage Rates

Mortgage demand plunges as costs reach new heights

The 30-year fixed conforming rate reached 6.81% last week, per MBA survey

Mortgage demand continues to decline amid surging home loan rates, according to the latest survey from the Mortgage Bankers Association (MBA). 

The mortgage composite index for the week ending Oct. 7 fell 2% from the prior week and 68.7% compared to the same period in 2021, on an adjusted basis, the survey shows. 

The refinance index decreased 1.8% from the previous week and was 86% lower than the same week one year ago. Meanwhile, the seasonally adjusted purchase index declined 2.1% from one week earlier and was down 39% from this time last year.

“The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement. “However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.”

The Fed has increased the federal funds rate by 300 basis points so far this year to control surging inflation, resulting in a “reset” of the mortgage market. Another 125 basis points in hikes are still expected to come in 2022, with a federal funds rate topping out well above 4%.  

Reflecting the tightening monetary policy, “Mortgage rates moved higher once again during the first week of the fourth quarter of 2022, with the 30-year conforming rate reaching 6.81%, the highest level since 2006,” Fratantoni said. Rates were at 6.75% the previous week. 

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According to the MBA survey, the average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) increased to 6.25% last week from the prior week’s 6.14%. The average contract interest rate for 5/1 ARMs increased to 5.56% from 5.36% in the same period. 

“Mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for 5-year ARM loans. The ARM share of applications remained quite high at 11.7% – just below last week’s level,” Fratantoni said.  

According to Mortgage News Daily, the 30-year fixed rate mortgage on Tuesday was 7.14% on average. 

The steep increase in rates has all but wiped-out demand for refinancing, with its share of mortgage activity remaining unchanged at 29% of total applications last week from 30.2% two weeks prior. 

The FHA share of total applications increased to 13.5% from 13.2% the week prior. The VA share rose from 10.7% to 10.9%. Meanwhile, the USDA share slightly decreased to 0.5% from 0.6% in the same period. 

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