Recent Decline in Mortgage Applications
In a recent report, U.S. mortgage applications took a sharp nosedive as mortgage rates soared over 7%. The surge in rates comes as hopes for an imminent interest rate cut by the Federal Reserve begin to diminish.
Market Response to Rising Consumer Prices
With consumer prices escalating beyond initial projections, the market has adjusted its expectations regarding the timing of the first interest rate reduction by the Federal Reserve in 2019. As a consequence, the 30-year mortgage rate has climbed back over 7%, reaching its highest point since mid-December. This uptick has put a damper on both home buying and refinancing activities.
Mortgage Application Volume Shrinks
The Mortgage Bankers Association (MBA) revealed that the overall market composite index, a gauge of mortgage application volume, dropped significantly in the latest week. The index plummeted by 10.6% to 181.6 for the week ending February 16, down from 199.4 during the same period last year.
Key Figures Highlighting the Decline
- The purchase index, measuring mortgage applications for home purchases, fell by 10.1% from the prior week.
- Refinance activities were also hit hard, with the refinance index declining by 11.4% as homeowners found fewer incentives to pursue this option.
- For homes priced at $766,550 or less, the average contract rate for a 30-year mortgage rose to 7.06% in the week ending February 16, up from 6.87% in the preceding week.
- Jumbo loans, covering mortgages for homes valued above $766,550, saw their rates jump to 7.16% from 7% in the previous week.
Mortgage Rates on the Rise
30-Year Mortgage Rate Hits 6.91%
The average rate for a 30-year mortgage backed by the Federal Housing Administration has climbed to 6.91% from 6.68%.
15-Year Mortgage Rate Increases to 6.61%
Meanwhile, the 15-year mortgage rate has risen to 6.61% from 6.53% the previous week.
Adjustable-Rate Mortgages Follow Suit
The rate for adjustable-rate mortgages has also seen an uptick, reaching 6.37% from last week’s 6.3%.
The Current Scenario
Market Outlook: As a March rate cut by the Fed seems improbable, mortgage rates have been pushed up to 7%, marking the highest level in two months. This surge in rates may dampen the housing market once again, as increased rates raise the cost of purchasing a home with a mortgage.
Despite the recent trend, experts predict that rates will decline by 2024.
Spring Forecast
With the spring home-buying season around the corner, there is optimism about a potential drop in mortgage rates. Chen Zhao, economic research lead at Redfin, anticipates that rates will start to decrease as inflation eases and the Fed begins to cut interest rates.
Insights from MBA
According to Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, “Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”