Homebuyers are pulling back from the housing market as mortgage rates inch higher.
Applications for mortgages have plummeted since the end of September. Most recently, in the week ended Oct. 11, applications slipped 17% compared to the previous week, according to data released Wednesday by the Mortgage Bankers Association.
The overall decline was driven by a 26% week-over-week decrease in refinancing demand and a 7% week-over-week decline in purchase applications, the industry group said.
It’s a shift resulting from rising mortgage rates, according to Joel Kan, the group’s vice president and deputy chief economist.
“The recent uptick in rates has put a damper on applications,” he said in a statement.
Last week, on the heels of stronger-than-expected data about the jobs market, the average 30-year, fixed-rate mortgage clocked its largest weekly gain in six months, according to data from mortgage giant Freddie Mac. As of Wednesday morning, the daily 30-year, fixed-rate mortgage stood at 6.62% while the 15-year, fixed-rate mortgage was at 6.07%, data from Mortgage News Daily showed.
Changing expectations
The increase in rates and softening demand is a reversal from the summer when mortgage rates eased and some buyers and borrowers entered the mortgage market, but industry professionals aren’t yet worried that the recent slowdown will completely cripple the housing market's slow recovery.
“The rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year,” Freddie Mac’s Chief Economist Sam Khater said in a statement last week. “Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.”
And not all buyers have been deterred, according to Kan, who noted that there are signs that first-time homebuyer demand is still strong.
Applications for those buyers “were little changed despite the increase in rates, as some first-time homebuyers remain in the market because of improving housing inventory conditions,” he said in his statement.
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Other professionals have pointed to annual data, emphasizing that though mortgage rates and buyer demand have increased in recent weeks, the bigger picture is more favorable. For example, despite the weekly decline in refinance applications, demand is still 111% higher than the comparable week one year ago. At the same time, purchase demand is 7% higher than the comparable week one year ago.
It’s a sign that “context matters,” Matthew Graham, chief operating officer of Mortgage News Daily, wrote in a post Tuesday.
“In the short term, it would be easy to lament the fact that rates are up,” he said. “But if we merely look back to early April, rates are still down the better part of 1 percent. In year over year terms, the improvement is about 1.4%. That's a very solid pace under any circumstances, but especially in the absence of the onset of a recession.”