Mortgage applications drop to their lowest level in more than two years

Rising mortgage rates hit both potential homebuyers and candidates for refinancing. Total mortgage applications fell 13.1% last week to the lowest level since December 2019, according to the Mortgage Bankers Association. Refinancing requests are down 15% weekly and are 56% lower than last year.

“High mortgage rates quickly closed refinancing operations, with activity declining in six of the first seven weeks of 2022,” said Joel Kahn, associate vice president of economic and industry forecasting at the MBA.

The average contract interest rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) increased to 4.06% from 4.05%, with points rising to 0.48 from 0.45 (including origination fees) for 20% loans low paying.

Higher mortgage rates combined with higher rates and lower inventory have driven applications to purchase a home 10% per week and 6% less than a year ago. This was the third consecutive week of declines in bids.

The average volume of purchase loans did not increase in the weekly MBA survey, but at $450,200, it remained very close to the survey’s record high of $453,000, which reached the week ending February 11.

Home prices have risen steadily and haven’t fallen in 2021. The S&P CoreLogic Case-Shiller Home Price Index was released Tuesday, and 2021 marked the highest calendar year increase in 34 years, according to Craig J. Lazzara, managing director at S&P DJI. Nationally, prices rose by 18.8% in 2021 versus an increase of 10.4% in 2020.

Higher mortgage rates will present a challenge to some buyers, which could lead to lower demand. Lazarra expects price growth to slow soon in response to higher rates.

“We have previously suggested that the strength in the US housing market is driven in part by a change in location preferences as households react to the COVID pandemic,” Lazarra said. “More data will be needed to understand whether this increase in demand simply represents an acceleration of purchases that would have occurred over the next several years rather than a permanent secular change. At the same time, we should soon begin to see the impact on increased mortgage rates on the housing prices.”