US Markets
Wednesday, October 4th, 2023 2:05 pm EDT
Key Points
- Mortgage rates have continued to rise significantly, leading to a substantial 6% drop in total mortgage demand compared to the previous week, as reported by the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $726,200) increased from 7.41% to 7.53%, with associated points rising from 0.71 to 0.80 for loans requiring a 20% down payment. This rate was notably higher than the 6.75% recorded during the same week one year ago.
- The surge in mortgage rates has had a notable impact on mortgage applications, which dropped to their lowest level since 1996. Applications for home loan refinancing decreased by 7% for the week and were 11% lower than the same week in the previous year. Refinances now constitute less than one-third of all mortgage applications, a significant shift from approximately three-quarters of applications just two years ago when rates were at record lows. Additionally, applications for mortgages to purchase homes also fell by 6% for the week and were down by 22% compared to the same week one year ago. The rise in rates has discouraged potential homebuyers, leading to a slowdown in the purchase market. However, adjustable-rate mortgage (ARM) applications increased, making up 8% of purchase applications, up from 6.7% a month ago. ARMs offer lower initial rates but come with shorter fixed terms, typically five or ten years.
Mortgage rates have continued to surge higher, resulting in a significant drop in total mortgage demand, which fell by 6% compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $726,200) rose to 7.53% from 7.41%, with associated points increasing to 0.80 from 0.71 (including the origination fee) for loans with a 20% down payment. This rate was significantly higher than the 6.75% recorded during the same week one year ago.
Joel Kan, MBA’s Vice President and Deputy Chief Economist, attributed the continued increase in mortgage rates to the recent upswing in Treasury yields. Consequently, mortgage applications dropped to the lowest level since 1996.
Refinance applications fell by 7% for the week and were 11% lower compared to the same week the previous year. Refinances now account for less than one-third of all mortgage applications, a stark contrast to two years ago when they constituted approximately three-quarters of all applications.
Applications for mortgages to purchase homes also decreased by 6% for the week and were down by 22% year-over-year. The purchase market experienced its slowest level of activity since 1995, primarily driven by the rapid rise in interest rates, which has deterred potential homebuyers.
Joel Kan noted that adjustable-rate mortgage (ARM) applications increased, making up 8% of purchase applications, up from 6.7% about a month ago. ARMs offer lower initial interest rates but are fixed for shorter terms, typically five or ten years.
An additional daily survey on mortgage rates by Mortgage News Daily reported an even higher average rate of 7.72% for the 30-year fixed rate during the week. Investors are reacting to stronger-than-expected economic data, which could lead the Federal Reserve to adopt a more aggressive approach to increasing interest rates.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/10/04/mortgage-demand-falls-to-lowest-level-since-1996.html
