Mortgage Rate Increase Dampens Homebuying and Refinance Activity

📝 SUMMARY: After experiencing a slight dip in December and January, mortgage rates have surged, adversely affecting mortgage demand. According to the Mortgage Bankers Association's seasonally adjusted index, total mortgage application volume decreased by 2.3% last week compared to the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances escalated to 6.87% from 6.80%, marking the highest rate since the early part of December 2023. This increase in rates has resulted in a 2% drop in refinancing applications, although they are still 12% higher than the same period last year due to a slight rate decrease from the 20-year high observed last fall.

The rise in mortgage rates has particularly impacted home purchase applications, which fell 3% for the week and are down 12% year over year. Joel Kan, an MBA economist, highlighted that the combination of elevated rates and low housing inventory continues to challenge homebuyers' affordability. This is corroborated by a Redfin report indicating an 8% decrease in pending home sales over the last four weeks compared to the previous year, attributing the slowdown to climbing mortgage rates and harsh winter conditions.

Furthermore, mortgage rates spiked to 7.08% following a government report indicating higher-than-expected inflation rates. This swift reaction in the bond market, which influences mortgage rates, prompted lenders to increase rates throughout the day. The recent hike in mortgage rates is dampening the housing market's recovery, affecting both prospective homebuyers and those looking to refinance by making affordability an even greater obstacle.

🔍 SOURCE: https://www.cnbc.com/2024/02/14/mortgage-rates-surge-higher-again-causing-homebuyers-to-pull-back.html