As the housing boom begins to fade, weekly mortgage demand falls

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The record high rise in house prices is sidetracking more buyers and finally curtailing the housing boom caused by the pandemic. Weekly mortgage demand is falling along with this, falling 6.9% over the week, according to the Mortgage Bankers Association’s seasonally adjusted index. This is the lowest level in almost a year and a half.

The number of applications for mortgages for home purchase fell by 5% over the week, and by 17% over the year. This is the slowest pace since the beginning of May 2020, when the locks were in full force.

Demand is now falling due to declining availability, especially in the lower end of the market where demand is highest. House prices rose more than 14% in April from the previous year, according to the latest S&P CoreLogic Case-Shiller National Price Index released on Tuesday. Craig Lazzara of S&P Dow Jones Indices called the unprecedented jump “truly extraordinary.”

Both the types and size of loans that borrowers are now applying for also indicate an overheating housing market.

“Applications for conventional loans fell last week to their lowest level since May last year,” said Michael Fratantoni, chief economist at the Mortgage Bankers’ Association. “The average loan size for all purchase applications has increased, indicating that first-time homebuyers who typically get smaller loans are likely to be pushed out of the market due to the lack of entry-level homes for sale.”

Housing demand rose a year ago as housing orders due to COVID-19 there were more Americans looking for more space in large homes, especially in suburban areas. Mortgage rates also set more than a dozen record lows last year, which boosted purchasing power and helped drive up home prices.

Now, higher mortgage rates are doing the exact opposite for buyers. The average contractual interest rate for 30-year fixed rate mortgages and associated loan balances (USD 548,250 or less) increased to 3.20% from 3.18%, while the interest rate decreased to 0.39 from 0 .48 (including processing fees) for loans with a 20% reduction in payment. At the beginning of this year, this figure was about 2.85%.

The increase in rates led to a drop in applications for refinancing a home loan by 8% weekly. Refinancing volume is now 15% lower than in the same week a year ago.

“Mortgage rates were volatile in the past week as investors tried to gauge the Fed’s upcoming action amid several diverging signals, including rising inflation, mixed labor market data, high consumer spending and limited housing supply that led to rapid returning home – rising prices, ”added Fratantoni.

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