The average U.S. mortgage rate remained essentially unchanged last week, rising by just one basis point to 3.18%, according to Freddie Mac’s Primary Mortgage Market Survey. A broader recovery of the economy has almost returned rates back to market “normalcy” as the standard 30-year FRM averaged 3.33% this same time last year.
Although mortgage rates still remain relatively low, the industry is beginning to see a pullback by those looking to enter the market, said Sam Khater, Freddie Mac’s chief economist. Overall, homebuyer demand slipped from 25% above pre-COVID levels at the start of the year, when mortgage rates hit record lows, to 8% above pre-COVID levels recently.
“We even see that purchase demand is diminished today as compared to late May and early June of 2020, when mortgage rates were the same level,” Khater said. “This is confirmation that while purchase demand remains strong, the marginal buyer is feeling the affordability squeeze resulting from the increases in mortgage rates and home prices we’ve experienced in recent months.”
Rising mortgage rates — and home prices that have remained high for months — are making a dent in mortgage applications, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“Record-low inventory is pushing home-price growth at double the rate from a year ago, and even above the 10% growth rates seen in 2005,” Kan said. “The housing market is in desperate need of more inventory to cool price growth and preserve affordability. Higher mortgage rates continue to shut down refinance activity, as the pool of borrowers who can benefit from a refinance further shrinks.”
In February, new home sales, existing home sales and pending home sales also saw month-over-month declines. But these numbers are coming down from a pandemic anomaly. Purchase loans are still topping year-over-year highs, however, the refi market is taking a beating from rising rates.
The refinance index decreased 3% last week and was 32% lower than the same week one year ago. A 40-plus basis point rise in mortgage rates over the past month resulted in approximately 7 million high-quality refi candidates who are no longer able to lock “forever rates,” according to a recent report from Black Knight.
On Feb.11, the mortgage data and analytics provider estimated there were 18.1 million borrowers who met broad-based underwriting criteria and could save money by refinancing. As of March 25, that number is just 11.1 million.