Purchase mortgage rates this week averaged 5.25%, down five basis points from a week ago, as some individuals put the American homeownership dream on standby due to higher rates and surging home prices, according to the latest Freddie Mac PMMS.
This time a year ago, the 30-year fixed-rate purchase rates were at 3%, the report shows. The government-sponsored enterprise (GSE) index accounts for just purchase mortgages reported by lenders during the past three days.
Economic uncertainty is causing mortgage rate volatility, according to Sam Khater, Freddie Mac’s chief economist.
“As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years,” Khater said. “Builders are also dealing with rising costs, meaning this posture is likely to continue.”
Another index shows rates at a higher mark. The Black Knight‘s Optimal Blue OBMMI, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages, as they typically have loan-level price adjustments — measured the 30-year conforming mortgage rate at 5.509% Wednesday, down from 5.512% a week prior.
Meanwhile, the 30-year fixed-rate jumbo was at 5.013% Wednesday, up from 5.006% the previous week, according to the Black Knight index.
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With rates at a higher level, mortgage applications declined 11% this week, compared to the prior week: Refi applications were down 9.5% and purchase apps decreased 12%, the Mortgage Bankers Association (MBA) reported Wednesday.
“General uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search,” Joel Kan, associate vice president of economic and industry forecasting at MBA, said in a statement.
The MBA data show far fewer home sales and mortgage originations in 2022 than a year ago. Total originations are expected to be at $2.5 trillion this year, compared to $3.9 trillion last year. Meanwhile, the MBA expects 5.934 million home sales in 2022, compared to 6.127 million in 2021.
Mortgage rates are following the Federal Reserve’s (Fed) inflation-fighting monetary policy. The central bank raised the interest rate by a half percentage point May 4 and announced a plan to reduce the $9 trillion asset portfolio, which ballooned during the pandemic. The Fed repeatedly has signaled it would raise rates six times this year with several more hikes planned in 2023.
According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.43% with an average of 0.9 point, down from 4.48% the week prior. The 15-year fixed-rate mortgage averaged 2.29% last year.
The 5-year ARM averaged 4.08% with buyers on average paying for 0.2 point, up from last week’s average of 3.98%. The product averaged 2.59% a year ago.
The higher rate landscape is provoking lenders to cut costs, mainly via layoffs. California-based Owning Corp., a direct-to-consumer lender acquired by Guaranteed Rate in February 2021, cut 108 jobs in three rounds from February to April. And it intends to add another 81 layoffs to the list.
Other lenders also have reduced staff, such as Interfirst, Mr. Cooper, Union Home Mortgage, Flagstar, Wells Fargo and Better. Rocket has not laid off workers but has offered a voluntary buyout to some of its staff.