Mortgage Demand Slips Again as Rates Continue Relentless Rise

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Demand for mortgages slipped to the lowest level since 1995 last week as mortgage rates climbed for the seventh week in a row, according to a weekly survey of lenders by the Mortgage Bankers Association.

After a slight pullback, rates were marching toward new highs Wednesday as bond market investors soured on 10-year Treasury notes that serve as a barometer for mortgage rates.

The MBA’s Weekly Mortgage Applications Survey showed applications for purchase loans were down by a seasonally adjusted 2 percent last week compared to the week before, and 22 percent from a year ago. While applications to refinance were up 2 percent week over week, they were down 8 percent from a year ago.

“Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits,” MBA Deputy Chief Economist Joel Kan said, in a statement. “Mortgage rates followed Treasuries higher, with the 30-year fixed mortgage rate jumping 20 basis points to 7.9 percent — the highest since 2000.”

After retreating from 2023 highs, yields on 10-year Treasurys were on the rise again Wednesday, jumping more than 10 basis points to 4.95 percent. A lender survey by Mortgage News Daily showed rates on 30-year fixed-rate loans jumping by nearly the same amount Wednesday, to 7.98 percent, nearly erasing three previous days of consecutive declines.

Mortgage rates flirting with 8 percent

The Optimal Blue Mortgage Market Indices, which track daily rate lock data but lag by a day, show rates on 30-year fixed-rate mortgages hitting a new high for the year of 7.81 percent on Oct. 19.

Although Federal Reserve policymakers aren’t expected to raise rates next week when they wrap up a two-day meeting on Wednesday, expectations that the Fed will pursue a “higher for longer” rate strategy have made investors of bonds and mortgage-backed securities that fund most home loans.

Other factors, including war in Ukraine and the Middle East, the potential for a government shutdown in November, rising U.S. borrowing, and the potential for the economy to tip into a recession next year also have investors demanding a larger “term premium” to compensate them for the risk posed by rate volatility, Federal Reserve Chair Jerome Powell noted last week.

But the recent runup in long-term bond yields could be helping the central bank cool the economy and curb inflation, allowing it to take a less hawkish stance on rates, Powell and some of his Fed colleagues have noted.

After implementing 11 rate increases since March 2022 that brought the short-term federal funds rate to a 22-year high of 5.25 percent to 5.5 percent, Fed policymakers haven’t raised rates since July.

The CME FedWatch Tool, which tracks futures markets to gauge the likelihood of future Fed moves, on Wednesday put the odds of a Fed rate hike next week at zero. While futures markets continue to price in a 25 percent chance of a small Fed rate hike in December, that’s down from 37 percent last week.

“The gradual upturn in the unemployment rate since the spring has passed largely unnoticed in markets, partly because it has been very modest but more because investors and the media are focused instead on the undeniably remarkable strength in payrolls,” economists at Pantheon Macroeconomics said in their Oct. 25 U.S. Economic Monitor. “Ultimately, though, the unemployment rate matters more to the Fed than the payroll numbers.”

Pantheon economists expect 10-year Treasury yields will fall to 4.25 percent by the end of the year and to 3.25 percent by the end of September 2024.

For the week ending Oct. 20, the MBA reported average rates for the following types of loans:

• For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 7.90 percent, up from 7.70 percent the week before. With points increasing to 0.77 from 0.71 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
• Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 7.78 percent, up from 7.56 percent the week before. Although points decreased to 0.71 from 0.85 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
• For 30-year fixed-rate FHA mortgages, rates averaged 7.52 percent, up from 7.36 percent the week before. With points increasing to 1.15 from 1.02 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
• Rates for 15-year fixed-rate mortgages averaged 7.08 percent, up from 6.98 percent the week before. With points increasing to 1.42 from 1.04 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
• For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.99 percent, up from 6.52 percent the week before. Although points decreased to 0.68 from 1.50 (including the origination fee) for 80 percent LTV loans, the effective rate increased.

Applications for ARM loans accounted for 9.5 percent of all mortgage requests, the highest share since November 2022.

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Email Matt Carter