A “For Sale” sign hangs in front of a home in San Mateo County, California, Aug. 22, 2023.
Liu Guanguan | China News Service | Getty Images
Higher mortgage rates are continuing to impact mortgage demand, particularly for refinancing. The Mortgage Bankers Association’s seasonally adjusted index reveals that total mortgage application volume decreased by 0.8% last week compared to the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, which stands at $726,200 or less, rose to 7.27% from 7.21%. Points increased to 0.72 from 0.69, including the origination fee, for loans with a 20% down payment.
Refinance demand experienced a 5% drop for the week and was down 31% compared to the same week last year. The refinance share of mortgage activity also decreased from 30.0% to 29.1% of total applications. In comparison, during the same period in 2020, when interest rates were around 3% due to pandemic monetary policy, the refinance share of mortgage applications was 63%.
On the other hand, applications for mortgages to purchase a home increased by 1% compared to the previous week, but were 27% lower than the same week last year. The share of adjustable-rate mortgages (ARMs) of total applications also rose, suggesting that potential buyers are using all available tools to lower their monthly payments. ARMs offer lower interest rates but carry a higher level of risk due to their shorter fixed-rate term.
Joel Kan, an economist at the Mortgage Bankers Association, highlighted the decline in mortgage applications, stating that it has reached its lowest level since 1996. He added, “Given the current high rates, there is minimal refinance activity and reduced motivation for homeowners to sell and purchase a new home at a higher rate.”
According to a separate survey by Mortgage News Daily, mortgage rates remained high at the start of this week. However, this could change after the release of the monthly Consumer Price Index on Wednesday. Matthew Graham, the chief operating officer at Mortgage News Daily, mentioned that any significant deviation from expectations in this data could have a substantial impact on the bond market.
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