With home prices skyrocketing and demand far outstripping supply over the last couple of years, fewer Americans can afford a home. High interest rates also make buying a home a mere fantasy, as rates on a 30-year fixed-rate mortgage sit at 5.25% as of the week ending May 19th, compared to 3.11% at the end of December, according to the St. Louis Fed.
The Mortgage Bankers Association (MBA) records a slightly higher contract interest rate, 5.49%, for 30-year fixed-rate mortgages with conforming loan balances of $647,200 or less. Interest rates for 30-year fixed-rate mortgages with jumbo loan balances (more than $647,200) were lower, at 5.03%.
According to the MBA’s Market Composite Index, mortgage applications declined 11% during the week ending May 13th. Although applications can vary from week to week, the annual decline was 15% less than the previous year.
“Mortgage applications decreased for the first time in three weeks, as mortgage rates — despite declining last week — remained over two percentage points higher than a year ago and close to the highest levels since 2009,” Joel Kan, associate vice president of economic and industry forecasting at MBA, said in a statement.
The MBA data broke down application activity further by segment. Refinance applications decreased 9.5% over the week, with a seasonally adjusted drop of 12%. The refinancing side of the market exploded after interest rates cratered in 2020 and into 2021. However, refinancing is down 75.8% compared to May 2021, as interest rates have approximately doubled since the early days of the pandemic.
The refinance share of all applications was around 33%, still a sizable percentage of all applications. Other types of mortgages that formed a sizable portion of the total applications were FHA loans at 11.1%, VA loans at 10.5%, and adjustable-rate mortgages at 10.3%.
The MBA also released recent forecast data, which predicted fewer home sales, resulting in fewer mortgage originations. According to the MBA, mortgage organizations in 2022 will total $2.5 trillion this year, which is paltry compared to 2021’s total of $3.9 trillion. The MBA also predicts home sales in 2022 will total 5.9 million, only a slight decrease from 2021’s 6.1 million.
High home prices and mortgage interest rates are the most important factors affecting potential buyers’ ability to purchase a house, but there are other factors. General economic factors such as inflation are also major concerns for prospects. As the cost of daily necessities goes up, the ability to purchase a home only declines. In April 2022, the annual interest rate was a whopping 8.3%, the highest level in over 40 years.
“General uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search,” Kan said.
