With inventory remaining tight for entry-level buyers, the average loan request hit another record high of $446,000.
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Rising mortgage rates put a damper on demand for mortgages last week, with applications from both homebuyers and homeowners looking to refinance their existing loans taking a hit, according to the latest Mortgage Bankers Association’s Weekly Mortgage Applications Survey.
Applications for purchase loans were down a seasonally adjusted 10 percent from the week before, and 12 percent from a year ago. Requests to refinance were down 7 percent week-over-week, and 52 percent from a year ago, when mortgage rates were nearly a full percentage point lower.
Joel Kan
“Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83 percent, said MBA forecaster Joel Kan, in a statement. “Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies.”
Kan said that with inventory remaining tight for entry-level buyers, the average loan request hit another record high of $446,000. There was a slight uptick in FHA and VA market share, with FHA loans accounting for 8 percent of applications, up from 7.7 percent the week before, and VA applications increasing to 10 percent of loan requests, up from 9.1 percent the week before.
Requests to refinance accounted for 56.2 percent of all applications, down from 57.3 percent the week before. Only 4.5 percent of borrowers applied for adjustable-rate mortgage (ARM) loans, unchanged from the week before.
The Mortgage Bankers Association reported average rates for the following types of loans during the week ending Feb. 4:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 3.83 percent, up from 3.78 percent the week before. Although points decreased to 0.40 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 3.62 percent, up from 3.59 percent the week before. With points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 30-year fixed-rate FHA mortgages, rates averaged 3.93 percent, up from 3.86 percent the week before. Although points decreased to 0.54 from 0.55 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 15-year fixed-rate mortgages, popular with borrowers who are refinancing, averaged 3.16 percent, up from 3.01 percent the week before. With points increasing to 0.47 from 0.41 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
- For 5/1 ARM loans, rates averaged 3.13 percent, up from 3.09 percent the week before. With points unchanged at 0.35 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
Mortgage rates have been rising as the Federal Reserve tapers its support for mortgage markets and prepares to begin raising short-term interest rates as early as next month. Some Fed policymakers are also eager to start shrinking the Fed’s balance sheet over worries about inflation.
As an emergency measure during the pandemic, the Fed was buying $80 billion in long-term Treasury notes and $40 billion in mortgage-backed securities every month, which helped push mortgage rates to record lows.
The Fed started tapering its purchases in November, a process that it accelerated in December as inflation worries mounted. On Jan. 26, the Federal Open Market Committee announced plans to buy $20 billion in Treasurys and $10 billion in mortgages in February, before ending the Fed’s asset purchases in early March.
Fannie Mae’s latest National Housing Survey showed the percentage of Americans who think it’s a good time to buy a home fell to an all-time low in January, with rising home prices and interest rates exacerbating affordability issues.
But mortgage lenders are becoming more willing to loan to “non-prime” borrowers, with home loans provided to subprime and near-prime borrowers up 17.6 percent during the third quarter of 2021, according to TransUnion.
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FAQs
Supply and demand: When demand for mortgages is high, lenders tend to raise interest rates. The reason is because lenders have only so much capital to lend out in the form of home loans. Conversely, when demand for mortgages is low, lenders slash interest rates in order to attract borrowers.
Why do mortgage interest rates keep rising? ›
Mortgage rates are affected by market factors like inflation, the cost of borrowing, bond yields and risk. Mortgage rates are also affected by personal financial factors, such as your down payment, income, assets and credit history.
Will mortgage rates go down in 2024? ›
As inflation comes down, mortgage rates will recede as well. Most major forecasts expect rates to go down later in 2024.
Will rising mortgage rates slow the housing market? ›
The effects of high inflation are weighing on growth. Mortgage rates rose above 7% in April and these higher rates slowed the housing market with declines in home sales and new construction.
What happens to demand when interest rates increase? ›
Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.
What happens when demand for loans increases? ›
Changes in the demand for loanable funds
When the economy is doing well, the rate of return on any investment spending will increase. That means the demand for loanable funds will increase, which leads to a higher real interest rate.
Will mortgage rates ever be 3% again? ›
Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.
Is it better to buy a house when interest rates are high or low? ›
Ideally, you'll be able to buy when both interest rates and home prices are low. If that's not possible, calculate both the short- and long-term costs of a lower interest rate versus a lower purchase price.
Why aren't mortgage rates going down? ›
But inflation is still above the Fed's 2% target, so we'll likely need to wait a while longer before rates ease. We could see the Fed cut its benchmark rate this fall. But if inflation continues to stagnate, we might not get a cut until the end of 2024 or in 2025. This would keep mortgage rates elevated this year.
How high could mortgage rates go by 2025? ›
Prediction of Mortgage Rates for 2025
Keep in mind that inflation is still a factor, and mortgage rates may continue to hover around 6%. Here are some predictions for 2025 from key players and industry associations in the mortgage space: Fannie Mae: 6.1% Mortgage Bankers Association: 5.9%
Mortgage rates are expected to come down in 2024, and inventory and home sales are likely to increase. Homebuyers and sellers can also expect prices to continue to rise, albeit at a slower clip than the past couple of years.
Where will mortgage rates be in 2026? ›
Long Forecast presents a scenario where mortgage rates embark on a downward trend starting in 2025, with a significant dip in January 2026. Their prediction suggests rates could plummet to 4.87%, a welcome relief for those facing the current market climate.
What is the mortgage rate forecast for the next 5 years? ›
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
What is the average mortgage interest rate right now? ›
Current mortgage and refinance interest rates
| Product | Interest Rate | APR |
|---|
| 30-Year Fixed Rate | 6.99% | 7.04% |
| 20-Year Fixed Rate | 6.69% | 6.74% |
| 15-Year Fixed Rate | 6.47% | 6.55% |
| 10-Year Fixed Rate | 6.35% | 6.44% |
5 more rowsThe 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025. However, recent economic developments have led some forecasters to believe that rates will remain elevated at around 7% for the remainder of this year.
Does demand for money increase interest rates? ›
Setting interest rates involves assessing the strength of the economy, inflation, unemployment and supply, and demand. More money flowing through the economy corresponds with lower interest rates, while less money available generates higher rates.
What are the three main factors that affect interest rates? ›
How are interest rates determined? Market conditions and the risks associated with lending largely influence interest rates. Factors such as inflation, economic growth, and availability of funds also play a role in determining interest rates.
How does demand affect the housing market? ›
The housing market is a good example of how supply and demand works within an industry. When the demand for housing is high, but supply is low, home prices often rise. When there is a glut of housing available in a market, homeowners may lower their prices due to less demand in the market.
What are mortgage rates affected by? ›
Inflation: Generally, when inflation picks up, so do fixed interest rates. Supply and demand: When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.
