As the Fed embarks on “quantitative tightening,” interest rates could come under further pressure.
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Weakening demand for purchase and refinance loans last week pushed mortgage applications to a 22-year low, according to a weekly Mortgage Bankers Association survey.
The MBA’s Weekly Mortgage Applications Survey shows purchase loan applications fell 7% seasonally adjusted from the previous week and 21% from the same period last year. Refinance requests were down 6% week over week and 75% from a year ago. The survey, which covers more than 75% of all retail residential mortgage applications in the United States, has been conducted since 1990.
After three consecutive weeks of declines, mortgage rates began to rise again at the end of May, according to the Optimal Blue Mortgage Market Indices (OBMMI).
“While rates were still lower than they were four weeks ago, they remain high enough to further suppress refinancing activity,” MBA forecaster Joel Kan said in a statement. “The buying market has suffered from persistently low housing inventories and soaring mortgage rates in recent months. These worsening affordability issues have been particularly difficult for potential first-time buyers. »
Mortgage rates rebound
Optimal Blue Mortgage Market Indices show 30-year fixed-rate mortgage rates hit their 2022 high of 5.593% on May 6. After falling more than 30 basis points, rates have been on a steady upward trend since May 27. At 5.502 percent on Tuesday, 30-year fixed-rate loan rates are just 9 basis points off their high for the year. A basis point is one hundredth of a percent.
Rates are up as bond market investors expect the Federal Reserve to continue raising the short-term federal funds rate this year and also begin trimming the balance sheet by nearly $9 trillion from the Fed.
The Fed is holding $2.7 trillion in mortgage-backed securities that it purchased as part of its “quantitative easing” program to keep mortgage rates low during the pandemic and in the wake of the recession in 2007-09.
As the Fed now embarks on “quantitative tightening” – letting that debt disappear from its balance sheet – interest rates could come under renewed pressure.
For the week ending June 3, the MBA reported average rates for the following loan types:
- For a fixed rate of 30 years conforming mortgages (loan balances of $647,200 or less), rates averaged 5.40, down from 5.33% the previous week. With points rising from 0.51 to 0.60 (including origination fees) for loans with an 80% loan-to-value (LTV) ratio, the effective rate has also increased.
- Rates for the 30-year fixed rate giant mortgages (loan balances greater than $647,200) averaged 4.99%, down from 4.93% the previous week. With points also dropping from 0.41 to 0.44 (including origination fees) for 80% LTV loans, the effective rate has also increased.
- For a fixed rate of 30 years FHA Mortgages, rates averaged 5.30%, down from 5.20% the previous week. With points dropping from 0.69 to 0.79 (including origination fees) for 80% LTV loans, the effective rate has also increased.
- Rates for 15-year fixed rate mortgages an average of 4.62%, compared to 4.59% the previous week. With points dropping from 0.63 to 0.65 (including origination fees) for 80% LTV loans, the effective rate has also increased.
- For 5/1 Adjustable Rate Mortgages (ARM) rates averaged 4.51%, down from 4.46% the previous week. Although the points remained at 0.68 (including origination fees) for 80% LTV loans, the effective rate also increased.
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Email Matt Carter