Mortgage Refinancing Hits 22-Year Low as 30-Year Mortgage Rates Seen Rising Above 7 Percent

A home for sale is seen in Orlando, Fla., on Dec. 8, 2020. Sales of previously occupied U.S. homes slowed for the fourth consecutive month in May as climbing mortgage rates and prices discouraged many would-be buyers. The National Association of Realtors said Tuesday, June 21, 2022, that existing home sales fell 3.4% last month from April to a seasonally adjusted annual rate of 5.41 million. AP Photo/John Raoux, File

Mortgage rates jumped again last week after the Federal Reserve reaffirmed its aggressive policy to raise interest rates to fight inflation.

The average interest rate for a 30-year fixed-rate mortgages for conforming loan balances rose to 6.52 percent from 6.25 percent.

Points increased from 0.71 to 1.15, including the origination fee, for 80 percent of loan-to-value ratio loans, while the effective rate also increased, reaching its highest level since 2008.

Meanwhile, the 30-year fixed-rate mortgage rate jumped over the 7 percent mark to 7.08 percent, for the highest rate since the Great Recession.

“The U.S. 10-year rate just crossed above 4 percent. Mortgage rates comfortably exceed 7 percent. We are now in new financial territory,” said Larry Summers, former U.S. Treasury Secretary, in a statement.

The hawkish move by the Federal Reserve last week, combined with economic uncertainty over the struggling housing market, has caused mortgage loan applications to tumble 3.7 percent from a week earlier, according to this week’s Mortgage Bankers Association’s seasonally adjusted index.

The Fed raised its benchmark interest rate by 75 basis points last week for the third time in a row, in order to bring down inflation to its goal of 2 percent.

The latest annual inflation rates stood at 8.3 percent as of August.

The impact of the interest-rate hikes have led to a major decline in the housing market.

Home loans are now at a 22-year low, as high borrowing rates have made housing too expensive for most buyers.

The uncertainty surrounding the Fed’s reduction of its mortgage-backed security (MBS) and Treasury holdings have also added to the volatility in mortgage rates.

After a brief recovery in mid-September, applications for home refinance loans fell 11 percent last week and were 84 percent lower from the same week in 2021.

Sellers and Buyers Are Both Uncertain

Purchase activity tumbled 0.4 percent for the week, with a decline of 29 percent from the same week a year ago, as housing prices skyrocketed.

However, annual price gains are beginning to decline at a record pace, as buyers pull out of the market due to higher mortgage rates.

“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day,” said Craig J. Lazzara, S&P’s Dow Jones managing director, in a July note.

“Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”

“After a brief pause in July, mortgage rates have increased more than a percentage point over the past six weeks,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Ongoing uncertainty about the impact of the Fed’s reduction of its MBS and Treasury holdings is adding to the volatility in mortgage rates.”

Due to the rise in mortgage rates, the share of adjustable-rate mortgages (ARM) stand at 10 percent of applications, at almost 20 percent of dollar volume.

Kan said that ARMs remain “a viable option for qualified borrowers in this rising rate environment,” as they offer lower interest rates and can be fixed for up to 10 years.