Weekly mortgage demand from homebuyers tumbles 12%, as higher interest rates take their toll

[mahatmakanejeeves]

REAL ESTATE

Weekly mortgage demand from homebuyers tumbles 12%, as higher interest rates take their toll

PUBLISHED WED, MAY 18 20227:00 AM EDT

Diana Olick
@IN/DIANAOLICK
@DIANAOLICKCNBC
@DIANAOLICK

KEY POINTS
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.49% from 5.53%
• Mortgage applications to purchase a home fell 12% week to week and were 15% lower compared with the same week one year ago.
• Applications to refinance a home loan continued their landslide, falling another 10% week to week.

Mortgage rates actually fell slightly last week, but the damage has already been done to housing affordability. Both refinance and purchase loan demand dropped, pulling total mortgage application volume down 11% for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Mortgage applications to purchase a home declined 12% week to week and were 15% lower compared with the same week one year ago. That was the first weekly drop in homebuyer demand since the third week in April. Mortgage rates have risen over 2 full percentage points since the start of the year, and home prices are up more than 20% from a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.49% from 5.53%, with points increasing to 0.74 from 0.73 (including the origination fee) for loans with a 20% down payment.

{snip}

Applications to refinance a home loan continued their landslide, falling another 10% week to week. Refinance demand was 76% lower than the same week one year ago. Two years of record-low interest rates during the Covid pandemic incited a refinance boom which has now gone bust. There is simply a very small pool of borrowers who can now benefit from a refinance.

{snip}

[underpants]

1. Boy I'm glad we refinanced. Dropped 1.5.

Maybe the lack of refinancing is because a lot of people already did it? Asking because I don’t really know what I’m talking about.

[JT45242]

2. Correlation not causality

Is the small rise in interest rates the cause? Maybe...

Plausibly could be families looking at crazy stupid increases in the cost of the homes...

Plausibly, families are worried that the increased cost of gas and greedflation will make moving into a home risky, as eating and getting to work are really important to most families.

Plausibly, they are sticking with the status quo until Covid is really under control for good.

Plausibly, they are waiting to hear from bosses if there will be raises this year, or if companies that are making record percentage profits by price gouging, plead poor when it comes to paying workers.

I could go in but this is (as is common) sloppy, lazy economic reporting. Where is your evidence that rules out other potential causes.

So sick if lazy journalism.

[madville]

3. Good

The real estate market needs to cool off, it’s gotten ridiculous again.

[progree]

4. So the P&I payment on a $300,000 home went up 38.1% ($6,156/year)

since the start of the year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.49% from 5.53%

....Mortgage rates have risen over 2 full percentage points since the start of the year, and home prices are up more than 20% from a year ago.

So at the beginning of the year, it was 5.49% minus 2 full percentage points = 3.49%. On a $300,000 home at 3.49%, that's a $1,345/month principal and interest (P&I) payment for a 30 year fixed loan.

Now at 5.49% -- that's a $1,701/month payment.

That's a 26.5% increase. A $4,272/year increase. And it all goes to the bank (not the seller).

And it says home prices are up more than 20% from a year ago. Well, mid-May is 5.5/12 = 0.46 years from the beginning of this year (from where I figured the mortgage rates -- the start of the year)

So on average that $300,000 home became a $327,600 home (assumes a constant price increase over the past 12 months, 0.46 years * 20% = 9.2% price increase since the start of the year).

The P&I on a $327,600 home at 5.49% interest is $1,858/month

So in 5.5 months, thanks to the combination of higher mortgage rates and higher house prices, we have a 38.1% increase in the P&I payment. Which is a $513/month increase in the P&I payment ($6,156/year).

The boost in prices helps the home seller of course (leaving aside that the home seller has to find another place to live, also at an inflated price compared to 5 1/2 months ago, so its not all joy and gravy).

The boost in the mortgage rate helps neither buyer nor seller, just the bank.