The pace of the spike in mortgage rates over the past several days has been nothing but staggering–especially considering it began when rates were already near their highest levels in more than a decade. From an average level of 5.55% for a top tier 30yr fixed quote on Thursday, the average lender was up to 6.28% by yesterday afternoon.
The drama began with last Friday’s Consumer Price Index (CPI), a key inflation report that showed prices rising faster than expected. Inflation is the biggest concern for the Fed and the biggest reason for their increasingly aggressive efforts to push rates higher in 2022.
CPI alone wouldn’t have been worth the drama we witnessed, however. The frenzy of the past few days was compounded by the fact that the financial market knew there was a Fed announcement coming up on Wednesday AND that the Fed was in its regularly-scheduled “blackout period.” During the blackout period, the Fed refrains from public comments on monetary policy. In other words, markets were flying blind as to what the Fed’s response might be to the CPI data, and imaginations ran wild.
Total mortgage application volume was 52.7% lower last week than the same week one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. Sharply rising interest rates are decimating refinance volume, and those rates, along with sky-high home prices and a shortage of houses for sale, are hitting demand from potential buyers.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.65% from 5.40%, with points rising to 0.71 from 0.60 (including the origination fee) for loans with a 20% down payment. This week they surged even higher, with the average rate hitting 6.28% on Tuesday, according to a daily measure from Mortgage News Daily.
“Mortgage rates followed Treasury yields up in response to higher-than-expected inflation and anticipation that the Federal Reserve will need to raise rates at a faster pace,” said Joel Kan, an MBA economist.
Weekly mortgage application volume rebounded slightly compared with the previous, holiday-adjusted week. Refinance demand rose 4% for the week but was 76% lower than the same week one year ago.
Mortgage applications from homebuyers rose 8% for the week but were 16% lower compared with a year ago.
“Despite the increase in rates, application activity rebounded following the Memorial Day holiday week but remained 0.29 percent below pre-holiday levels,” added Kan.
The housing market is now reeling in a rising interest rate environment. After two years of record-low rates, fueled by the Federal Reserve’s Covid pandemic-induced purchases of mortgage-backed bonds, home prices are overheated and affordability is now in the basement. Major real estate brokerages, Redfin and Compass, both announced layoffs Tuesday.
“Mortgage rates increased faster than at any point in history. We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does,” wrote Redfin CEO Glenn Kelman on the company’s website.
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