Mortgage rates are hovering in the lower 5% range, after moving north for seven consecutive weeks, according to the latest Freddie Mac PMMS.
Purchase mortgages this week averaged 5.10%, down only one basis point from a week ago. A year ago at this time, 30-year fixed-rate purchase rates were at 2.98%. The GSE’s index accounts for just purchase mortgages reported by lenders over the past three days.
According to Sam Khater, Freddie Mac’s chief economist, the combination of swift home price growth and the fastest mortgage rate increase in over 40 years is finally affecting purchase demand.
“Homebuyers navigating the current environment are coping in a variety of ways, including switching to adjustable-rate mortgages, moving away from expensive coastal cities, and looking to more affordable suburbs,” Khater said in a statement. “We expect the decline in demand to soften home price growth to a more sustainable pace later this year.”
This week, mortgage applications dropped 8.3% from the past week: refi applications were down 9% and purchase apps declined 7.6%, according to the Mortgage Bankers Association (MBA). The MBA found that the adjustable-rate mortgage share increased to 9.3% of total applications, double what it was just three months ago.
Mortgage rates are following the Federal Reserve’s (Fed) inflation-fighting monetary policy. The central bank has signaled that it will raise rates more six times in 2022, and likely several more times in 2023. Also, the Fed since early March has been letting its purchases of mortgage-backed securities run off. There is consensus from the Fed governors to stop replacing up to $35 billion of maturing MBS assets each month.
Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer.
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According to economists, the tightening monetary policy will reduce originations in 2022 and 2023, and could potentially trigger a recession to the U.S. economy next year. Fannie’s Economic and Strategic Research (ESR) Group dropped its projected single-family mortgage origination volume for 2022 from $3 trillion to $2.8 trillion. It also downsized the 2023 forecast from $2.7 trillion to $2.4 trillion. To compare, in 2021, the total was $4.5 trillion.
Another index shows rates at the 5.3% mark. Black Knight‘s Optimal Blue OBMMI pricing engine, which considers refinancings and additional data from the MBA, measured the 30-year conforming mortgage rate at 5.317% on Wednesday, down from 5.324% in the previous Wednesday. Meanwhile, the 30-year fixed-rate jumbo was at 4.841% on Wednesday, up from 4.815% in the previous week.
According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.40% with an average of 0.9 point, up from 4.38% the week prior. The 15-year fixed-rate mortgage averaged 2.31% last year. The 5-year ARM averaged 3.78% with buyers on average paying for 0.3 point, up from last week’s average of 3.75%. The product averaged 2.64% a year ago.
The higher rate landscape is provoking lenders to cut costs, mainly via layoffs. This week, Rocket Mortgage, the biggest mortgage lender in the country, offered voluntary buyouts to 8% of its workforce. Flagstar Bank cut 20% of its mortgage staff since the beginning of the year. Wells Fargo, the top depositary in the U.S., confirmed it is also reducing its workforce, just days after reporting weak earnings for the first quarter.