With interest rates continuing to rise, the housing market continues to suffer.
Mortgage applications dropped 8.3% in the week ended April 22 from a week earlier, hitting the lowest level in more than three years, according to the Mortgage Bankers Association (MBA).
Refinancing applications fell 9% from the prior week and 71% from a year ago, to the lowest level since December 2018. Purchase applications slid 8% from a week ago and 17% from a year ago, to the lowest level in almost two years.
“With mortgage rates increasing last week to the highest level since 2009, applications continued to decline,” MBA economist Joel Klein said in a statement.
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) gained to 5.37% last week from 5.2% a week earlier. The rate has jumped more than 2 percentage points so far this year.
“The drop in purchase applications was evident across all loan types,” Kan said. Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices.”
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Outlook isn’t Promising
Looking forward, “the recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months,” he said.
Homebuyers continue to migrate to adjustable rate mortgages (ARMs) to “mitigate higher monthly payments,” Kan said. ARMs generally start with lower rates than fixed mortgages, and sometimes their rates are fixed for the first five, seven or 10 years of the mortgage. The danger, of course, is that ARM rates can soar later in the mortgage’s term.
In any case, ARMs accounted for 9% of applications last week in volume terms, double the total of three months ago. That also coincides with a 1.5 percentage-point increase in the 30-year fixed rate.
Meanwhile, a survey of homeowners and renters showed that 40% see cryptocurrencies as a better investment than a home. Also, 50% of respondents think stocks are a better investment than a home, according to the report, published by ConsumerAffairs, a consumer finance guide.
Among home buyers, 44% said they spent more than what they had budgeted for the home, according to the survey. The average over-spend was $10,334. On the bright side, 73% of homeowners said owning a home increased their self-esteem.