Mortgage demand is rising again, but interest rates are rising

“For Sale” sign in front of a house on February 22, 2023 in Miami, Florida.

Joe Radle | Getty Images

Mortgage demand has been rising for three consecutive weeks as interest rates fell in response to recent bank failures.

But rates are rising again, and this may reduce the volume of applications.

Total mortgage applications rose 3% last week from the previous week, according to Association of Mortgage Bankersseasonally adjusted index.

The average contractual interest rate for 30-year fixed-rate mortgages with a matching loan balance ($726,200 or less) decreased to 6.48% from 6.71%, with the interest rate down to 0.66 from 0 .79 (including issuance fee) for loans with 20% down. payment. It was the lowest level in a month, but still much higher than the same week a year ago, when the rate was around 4.5%.

“Treasury bond yields tumbled last week due to uncertainty over the health of the banking sector and concerns about the broader impact on the economy,” said Joel Kahn, MBA deputy chief economist. “However, mortgage rates have not fallen as much as Treasury rates due to increased MBS market volatility.”

Mortgage refinancing applications increased 5% on the week but were 68% lower than the same week a year ago. Demand for refinancing is very sensitive to weekly rate changes, but there are very few borrowers right now who can still benefit from refinancing at today’s higher interest rates.

Mortgage applications to buy a home increased 2% from the previous week and were 36% lower than the same week a year ago. Today’s homebuyers may be less dependent on weekly changes in interest rates and more dependent on the state of the economy. Pressure on the banking sector, high housing prices and a shortage of homes for sale have all taken a toll on consumer confidence.

According to a separate Mortgage News Daily index, fears about the banking sector have somewhat eased, at least in financial markets, mortgage rates have risen since the beginning of this week. On Tuesday, the average rate was set at 6.75%.

All ears are on the Federal Reserve, which is expected to raise the federal funds rate by a quarter of a point due to the strain on the banking sector. Mortgage rates don’t exactly follow the Fed, but they do respond to its perception of the economy as a whole.

“In any case, they will also be updating their rate forecast for the coming months/years, and this is perhaps even more important than what they do with [the] rate hike,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.

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