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Higher Interest Rates Sink U.S. Mortgage Demand By 40%

By Cristian Bustos. Originally published at ValueWalk.

Higher Interest Rates

Higher interest rates are having a devastating effect on mortgage applications in the U.S., which have decreased by 41% from a year ago – the lowest since 2019. Refinancing is also being affected, while real estate experts warn of the consequences of tighter monetary policies in the coming months.

Higher Interest Rates

As reported by CNBC, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances grew from 4.80% to 4.90%. For loans with a 20% down payment, points dropped from 0.56 to 0.53, origination fee included.

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A year ago, the rate was 3.36%, and the current numbers represent the fourth consecutive week of increases.

According to the Mortgage Bankers Association’s seasonally adjusted index, the higher interest rates mean refinance applications plunged by 10% from the previous week with refinancing plunging by 62% from a year ago.

MBA economist Joel Kan said, “Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months.”

“As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019,” he added.

Higher Demand

CNBC reports that the refinance share of all applications dived from 51% to 38.8% from a year ago. While housing available for sale remains thin, higher wages have kept demand for properties at a blazing high, setting bidding as the main option.

Kan added, “The elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges.”

The mortgage business launched into massive hiring during the first year of the pandemic, given record-low interest rates that triggered significant refinance and purchase demand.

According to a report by CareLogic on Tuesday, home prices increased 20% in February from a year ago, which could deter some consumers from refinancing their current mortgages.

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