Purchase Mortgage Applications Defy Surging Interest Rates
To somewhat of a surprise to many, purchase mortgage applications increased 4.2% from mid-June, propelled by borrowers’ demands for purchase loans.
Despite mortgage rates reaching the highest level in 14 years, mortgage applications increased 4.2% from the prior week, according to the latest Mortgage Bankers Association (MBA) survey for the week ending June 17.
“Mortgage rates continued to surge last week, with the 30-year fixed mortgage rate, jumping 33 basis points to 5.98% – the highest since November 2008, and the largest single-week increase since 2009,” Joel Kan, Associate Vice President of Economic and Industry Forecasting for the Trade Group, said in a statement.
Rates for mortgage loans were strongly impacted by tightening monetary policy to combat rising inflation. On June 10, the U.S. Consumer Price Index showed an 8.6% increase year-over-year in May, the highest level in four decades…yes, you read that correctly…4 decades! Consequently, the Federal Reserve raised the federal funds rate by 75 basis points last week, a rate hike not seen since 1994. Another 0.75% hike is expected from the Fed’s meeting in July (which to many, seems like the opposite of what should occur, but this in fact part of how they’ve historically corrected inflation in America). But when the rate was already almost as low as it can go, that’s the alternative.
With mortgage rates now at almost double what they were a year ago, refinancing applications decreased 3% from the prior week in mid-June, and were 77% lower than the same week in 2021. Refinances were 29.7% of total applications last week, decreasing from 31.7% the previous week in mid-June, the survey shows.
Meanwhile, the seasonally adjusted purchase index ticked up 8% from the prior week too, but was 9.4% down from the same week a year ago. According to Kan, purchase applications increased for the second straight week, driven mainly by conventional applications.
Higher rates usually cool off the prices, and Kan noted a potential trend in this week’s data. “The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price growth is moderating,” the economist said. However, a lot of consumers are thinking that the recent changed are the beginning of going into a recessive economy, but is that the case…or is this part of our economy and home prices normalizing that we’re really experiencing?
The Adjustable-Rate Mortgages (ARM) share of applications jumped to over 10.6%, demonstrating continued popularity among borrowers, with the average interest rate for a 5/1 ARM rising to 4.78% from 4.57% a week prior, according to the MBA. When the 30-year fixed rate loan’s interest rates increase, this is a familiar trend because ARMs cause mortgages to be more affordable. However, not without some risk because they don’t only have the possibility of going up and/or down, but they also come due after 5 years (i.e. with a 5/1 ARM).
The FHA share of total applications increased to 12% from 11.8% the week prior. Meanwhile, the VA share went from 11.7% to 10.7%. The USDA share of total applications declined to 0.5% from 0.6% the week prior.
The Trade Group estimates the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) increased to 5.98%, from 5.65% the previous week in mid-June. For jumbo mortgage loans (greater than $647,200), it went to 5.49% from 5.25%.
As always, if you’re thinking of listing your home, or if you don’t own a home, condo or similar, and are interested in buying, let me know so I can help walk you through the current market conditions, as well as all the resources and referrals I have from my many years of success in the industry. As a 10 year Five Star Real Estate Agent, knowing that no matter what is happening in the economy, and especially now, you need a professional real estate broker as your ally…and you’ll be in great hands with my team and me!
Please reach out, I’m here to assist and help you #moveforward,
Teresa Catania, Broker
West + Main Homes
West + Main Homes Oregon
Bend Oregon | Central Oregon | Portland Oregon
503-740-3293
teresa@teresacatania.com