With interest rates remaining high, demand for mortgages dropped during the week ended Nov. 4, according to the latest data from the Mortgage Bankers Association (MBA).
The Market Composite Index, which measures mortgage loan-application volume, fell 0.1 percent from a week ago on a seasonally adjusted basis, according to an MBA
press release on Nov. 9. The index fell by 2 percent on an unadjusted basis. Mortgage rates had “edged higher” last week after the Federal Reserve indicated that it will continue raising its benchmark interest rate in its attempt to bring down elevated inflation, said Joel Kan, MBA’s vice president and deputy chief economist.
The interest rate on 30-year fixed-rate mortgages remained above 7 percent for the third consecutive week, at 7.14 percent. This is close to the highs in 2001.
“Purchase applications increased for the first time after six weeks of declines, but remained close to 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty. Refinances continued to fall, with the index hitting its lowest level since August 2000,” Kan said.
The share of refinance applications in total mortgage activity declined to 28.1 percent from 28.6 percent in the previous week.
The housing market is a sector that is highly sensitive to federal interest rates. At the beginning of 2022, the Fed’s benchmark federal funds rate was only 0.08 percent, which was raised to 3.08 percent by October. This has pushed up mortgage rates as well.
Meanwhile, the rise in mortgage rates is making prospective customers look for cheaper options like adjustable-rate mortgages (ARM). According to MBA data, the share of ARM in total mortgage applications rose to 12 percent for the week ended Nov. 4.
Housing Market
In a note in mid-October, Goldman Sachs warned about the housing market facing more pain as mortgage rates keep rising. Analysts at the firm pointed out that home sales data hadn’t yet fully accounted for the recent surge in the rates.“While existing home sales declined less rapidly than earlier in the year and home prices increased sequentially, we expect the deterioration in the housing market to reaccelerate in future prints,” the note
said, according to Business Insider.
During a recent
interview with CNN, Mark Zandi, Moody’s analytics chief economist, warned that the housing market is “going to struggle” over the next 12–18 months. He is expecting some “meaningful price declines” and the market to slow down far more than other areas of the economy.
An
update by mortgage lender Freddie Mac on Nov. 3 noted that unsure buyers are navigating an “unpredictable landscape” that is keeping demand in the market down. In addition, other potential buyers have been sidelined from the market due to affordability issues, it stated.
