The increase comes at a particularly challenging time for the housing market.
The 30-year fixed mortgage rate jumped by 11 basis points from last week, Freddie Mac reported Thursday. Freddie’s Primary Mortgage Market Survey showed that the long-term fixed-rate mortgage rose from 5.55% to 5.66% week over week. The 15-year fixed-rate mortgage increased 13 basis points to 4.98%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) increased 15 basis points to 4.51%. Chief economist Sam Khater pointed to the market’s “renewed perception of a more aggressive monetary policy stance” as another reason why mortgage rates are almost double than they were a year ago. Compared to this time last year, the average 30-year loan was 2.87%. “The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration,” Khater said. Steve Reich, chief operations officer of Finance of America Mortgage, commented: “Home-price appreciation continues to become more gradual as the Fed has worked to manage inflation and raised mortgage interest rates. Data shows there was a significant boost in inventory in June — active listings increased by about 18% compared to the same period last year. This spike can likely be attributed to the fact that more sellers put their homes on the market during the popular summer homebuying season, which may have reduced competition in certain markets. “While mortgage rates were higher compared to this time last year and the 30-year fixed mortgage is hovering above 5%, rates are comparable to pre-pandemic levels. For that reason, I believe that prospective homebuyers should look at the glass as half full as they continue or begin their home search. More inventory and slowing demand may provide some wiggle room, and savvy buyers may be able to take advantage of this opportunity.”
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Applications continue downward trend.
Refinance applications posted their fourth weekly decline, with refi loan count falling to a new record low. Fannie Mae’s latest refinance application-level index (RALI), which tracks refinance activity and historical trends, showed that dollar volume fell 3.6% for the week ending September 2. Compared to this time last year, the RALI dollar volume was down 78% and was 4.8% below its four-week average. “Refinance applications decreased for the fourth consecutive week,” said Doug Duncan, chief economist of Fannie Mae. “Since the beginning of August, with mortgage rates moving up, refinance application dollar volume has declined by 18%, reaching its lowest level since January 2019.” Historical comparisons show that the dollar volume of refinance applications was 82.9% lower than the refi boom seen in the third quarter of 2020. However, it was up 17.6% from the refi slowdown during the fourth quarter of 2018. Duncan also noted a significant decline in the RALI count, which dropped 3.3% week over week and was down 76.6% year over year. “Excluding holiday-impacted weeks, the RALI loan count is now lower than the lowest levels of the refi slowdown in the fourth quarter of 2018,” he said. Purchase mortgage applications also continued to decrease last week. According to the Mortgage Bankers Association, purchase activity dipped 1% on a seasonally adjusted basis. “Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand,” said MBA chief economist Mike Fratantoni. “There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity.” Homebuyers and sellers to remain on the sidelines.
Fannie Mae’s Home Purchase Sentiment Index dropped for the sixth month in August as higher mortgage rates and other affordability constraints continued to weigh heavily on consumers. The index declined to a reading of 62 points in August, down 0.8 points from July and 13.7 from a year ago. Despite the slight drop, consumer sentiment faced volatility among four of its six components, including those measuring perceptions of home buying and home-selling conditions, as well as expectations regarding home prices and mortgage rates. The net share of respondents who believed it is a good time to buy a home grew eight percentage points to 22%. Meanwhile, home-selling sentiment plummeted from 16% to 59% as the share of those who think it’s a bad time to sell increased from 27% to 35% in August. “Accompanying this, HPSI respondents reported a significant decrease in home-selling sentiment,” said Fannie Mae chief economist Doug Duncan. “We also observed a large decline in consumers reporting high home prices as the primary reason for it being a good time to sell a home, suggesting that expectations of slowing or declining home prices have begun to negatively affect selling sentiment.” The net share of consumers anticipating home prices to go up in the next 12 months fell 9% month over month to 33%. As for mortgage rates, the net share of consumers expecting rates to go down over the next year rebounded to 11%. “Conversely, lower home prices would obviously be welcome news for potential first-time homebuyers, who are likely feeling the combined affordability constraints of the high home price and high mortgage rate environment,” Duncan said. “In fact, the survey’s ‘ease of getting a mortgage’ component dropped to an all-time low among this typically younger demographic (i.e., 18- to 34-year-olds). “With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year.” |
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