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Mortgage demand reaches lowest level in two decades

Borrowers' demand fell for the fourth consecutive week amid increased economic uncertainty and affordability challenges

Borrowers’ demand for mortgage loans decreased for the fourth consecutive week to the lowest level in more than two decades, according to the Mortgage Bankers Association (MBA).

The market composite index, a measure of mortgage loan application volume, declined 1.8% for the week ending July 22 compared to the previous week. The refinance index dipped 3.7% in the same period, while the purchase index decreased 0.77%.

“Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market,” Joel Kan, associate vice president of economic and industry forecasting at MBA, said in a statement. 

Consequently, recent months’ data shows a significant slowdown in home sales.

On Tuesday, the U.S. Census Bureau and the Department of Housing and Urban Development showed sales of new single-family houses reached 590,000 in June, at a seasonally adjusted annual rate, down 8.1% from May. 

The MBA data indicates that, in comparison to the same week in 2021, the market index fell 63%, back to the lowest level since February 2020.

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The refi index was down 82.6% in the same period. Meanwhile, the purchase index was 15% lower year-over-year, “close to lows last seen at the onset of the pandemic,” according to Kan. 

He added: “A potential silver lining for the housing market is that stabilizing mortgage rates and increases in for-sale inventory may bring some buyers back to the market during the second half of the year,” the economist said. 

The trade group estimates the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) fell to 5.74%, from the previous week’s 5.82%. Jumbo mortgage loans (greater than $647,200) remained almost the same, increasing from 5.31% to 5.32%. 

Mortgage rates have been volatile following the Federal Reserve’s tightening monetary policy. Purchase mortgage rates increased last week to 5.54%, after jumping 20 basis points in the previous week, according to the latest PMMS survey from Freddie Mac

According to the MBA data, refinance share of all mortgage activity decreased from 31.4% the previous week to 30.7% of total applications this week. 

The Federal Housing Administration’s (FHA) share of total applications fell to 12.1% from the previous week’s 12.4%. The Veterans Affairs‘ (V.A.) share of applications remained unchanged at 10.6% and the United States Department of Agriculture’s (USDA) share also held steady, but at 0.6%. 

The share of adjustable-rate mortgages (ARM) applications declined from 9.5% to 9.1%. According to the MBA, the average interest rate for a 5/1 ARM increased to 4.67% from 4.60% a week prior. 

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

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