Mortgage applications plunged as the 30-year fixed mortgage rate inched higher toward 7 percent, a weekly industry survey shows.
The Purchase Index plummeted 18 percent, to a 25-year low, while the Refinance Index fell 2 percent. The indexes were down 72 percent and 41 percent, respectively, from a year ago.
The average 30-year fixed mortgage rate increased 23 basis points, to 6.62 percent, the highest since the middle of November 2022. That’s up from 6.39 percent a week earlier and represents the second consecutive weekly jump.
“This time of the year is typically when purchase activity ramps up. But over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” said Joel Kan, MBA’s vice president and deputy chief economist.
“The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”
The significant boost in the 30-year rate was attributed to the latest elevated monthly inflation readings and the better-than-expected labor and retail sales data. These numbers have forced investors to shift their expectations that the Federal Reserve will continue raising its policy federal funds rate through the summer, sending Treasury yields higher. As a result, the 10-year yield, which functions as a benchmark for mortgage rates, finished the Feb. 21 trading session above 3.95 percent.
Meanwhile, a growing chorus of market experts says that the U.S. real estate market could be showing signs of life again.
“Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle,” NAHB chief economist Robert Dietz said. “And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.”
White House Targets Housing Affordability
The White House releases a plan on Feb. 22 to reduce mortgage insurance fees charged to first-time homebuyers.Vice President Kamala Harris and Housing Secretary Marcia Fudge announced the details to trim Federal Housing Administration (FHA) loan fees at an event in Bowie, Maryland. The proposal would help approximately 850,000 borrowers save roughly $800 per year on the cost of a typical loan.
Although U.S. home prices have eased from the pandemic-era buying frenzy, housing affordability has continued to be an issue for millions of Americans trying to achieve the goal of homeownership.
“Rising mortgage rates, supply-chain disruptions, elevated construction costs, and a lack of skilled workers and lots all contributed to a declining housing market and worsening affordability conditions going back to the second quarter of last year,” Alicia Huey, the NAHB chairwoman, said in a statement.