Rising Mortgage Rates Take Big Bite Out Of Homebuyer Demand

Key Takeaways:

– Inman is hosting upcoming events like Connect Miami, Luxury Connect, and Inman Connect Las Vegas
– Mortgage rates have risen, leading to a decrease in homebuyer demand
– MBA’s Weekly Mortgage Applications Survey shows a decline in applications for purchase loans
– Rates for different types of loans have increased
– Home sales started strong in 2024 but have declined in recent weeks due to rising rates
– The rebound in rates is attributed to a strong jobs report and high inflation numbers
– Fed officials are expected to cut rates multiple times this year
– Pantheon Macroeconomics predicts six rate cuts totaling 1.5 percentage points starting in May

inman:

Mark your calendars for the ultimate real estate experiences with Inman’s upcoming events! Dive into the future at Connect Miami, immerse in luxury at Luxury Connect, and converge with industry leaders at Inman Connect Las Vegas. Discover more and join the industry’s best at inman.com/events.

Rising mortgage rates continue to take a toll on homebuyer demand, with applications for purchase loans falling last week for the fourth week in a row, according to the latest lender survey from the Mortgage Bankers Association (MBA).

The MBA’s Weekly Mortgage Applications Survey showed applications for purchase loans plummeted by a seasonally adjusted 10 percent last week when compared to the week before, and were down 13 percent from a year ago. Requests to refinance were down 11 percent from the week before, to about the same level as a year ago.

Mike Fratantoni

“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” MBA Chief Economist Mike Fratantoni said in a statement. “Mortgage applications dropped as a result, with a larger decline in refinance applications. Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”

For the week ending Feb. 16, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $766,550 or less), rates averaged 7.06 percent, up from 6.87 percent the week before. With points increasing to 0.66 from 0.65 (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 $766,550) averaged 7.16 percent, up from 7.00 percent the week before. With points increasing to 0.45 from 0.39 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.91 percent, up from 6.68 percent the week before. With points increasing to 1.03 from 0.89 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing, rates averaged 6.61 percent, up from 6.53 percent the week before. Although points decreased to 0.77 from 0.94 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.37 percent, up from 6.30 percent the week before. With points increasing to 0.71 from 0.60 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.

Home sales seemed to be off to a strong start in 2024 as homebuyers took advantage of the big drop in rates in November and December and applications for purchase mortgages posted week-over-week gains during each of the first three weeks of January.

But with mortgage rates on the rebound in February, the MBA’s lender surveys show demand for purchase loans has contracted for the last four weeks.

Mortgage rates on the rebound

Mortgage rates remain nearly a full percentage point below a 2023 peak of 7.83 percent registered on Oct. 25. But after hitting 6.90 percent Tuesday, rates on 30-year fixed-rate conforming mortgages were up 40 basis points from a recent low of 6.50 percent registered on Feb. 1, according to loan lock data tracked by Optimal Blue.

A surprisingly strong jobs report on Feb. 2 put to rest speculation that the Federal Reserve would begin lowering short-term interest rates in March, economists said. Bond market investors who fund most mortgages lost some of their appetite for such investments, pushing long-term rates back up. The rebound in rates resulted in the biggest drop in pending sales since October, Redfin estimated.

In another blow to those hoping for lower rates, last week’s release of the latest Consumer Price Index (CPI) data showed annual inflation remaining stubbornly high at 3.1 percent in January, led by increases in the cost of shelter, auto insurance and medical care.

Consumer price index


Once they’re convinced inflation is firmly on course to hit their 2 percent target, Fed policymakers indicated in December that they expect to cut rates three times this year by a total of 75 basis points.

Futures markets tracked by the CME FedWatch tool showed that as of Wednesday, investors don’t expect the Fed to start cutting rates until June. But futures market investors still see better than even odds that the Fed will cut rates at least four times by the end of the year, bringing rates down by a full percentage point or more.

In their Feb. 21 U.S. Economic Monitor, economists at Pantheon Macroeconomics said they still expect the Fed to approve six rate cuts totaling 1.5 percentage points this year, starting in May.

“Fed officials doubtless feel vindicated after their pushback on the idea of a March rate cut, following the upside surprises to January payrolls, wages, the PPI [Producer Price Index], and the CPI,” Pantheon economists Ian Shepherdson and Oliver Allen wrote.

More recent downside surprises to retail sales and manufacturing output, they said, “can be rationalized — reasonably — as hits from the spell of severe weather across large parts of the country.” But by the time of the Fed’s May 1 meeting, winter weather effects “will have washed out” of the data, giving policymakers a clearer idea of the real state of the economy.

“We think the data will tell the Fed that it’s safe to start easing [in May], though policymakers doubtless will still want to sound cautious, and willing to reverse course if the data change for the worse,” Pantheon economists concluded.

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Property Chomp's Take:

Hey there, real estate enthusiasts! If you're looking to stay on top of the latest trends and insights in the industry, mark your calendars for Inman's upcoming events. Whether you want to dive into the future at Connect Miami, immerse in luxury at Luxury Connect, or converge with industry leaders at Inman Connect Las Vegas, there's something for everyone.

But before you get too excited, let's talk about the current state of the market. Rising mortgage rates have been taking a toll on homebuyer demand, with applications for purchase loans falling for the fourth week in a row, according to the latest survey from the Mortgage Bankers Association (MBA). The survey showed a significant drop in applications for both purchase and refinance loans, as potential homebuyers are feeling the strain of higher rates and home values in a supply-constrained market.

For those keeping an eye on rates, here's a quick update on the average rates for different types of loans for the week ending Feb. 16:

- 30-year fixed-rate conforming mortgages: 7.06%
- 30-year fixed-rate jumbo mortgages: 7.16%
- 30-year fixed-rate FHA mortgages: 6.91%
- 15-year fixed-rate mortgages: 6.61%
- 5/1 adjustable-rate mortgages: 6.37%

While rates are still below the peak of 7.83% in 2023, they have been on the rebound in February, causing a drop in demand for purchase loans. The recent uptick in rates can be attributed to a strong jobs report in early February and stubbornly high inflation, which has led investors to believe that the Federal Reserve may not cut rates as soon as expected.

Looking ahead, economists at Pantheon Macroeconomics expect the Fed to approve six rate cuts totaling 1.5 percentage points this year, with the first cut potentially coming in May. While there may be some uncertainty in the market, experts believe that the data will guide the Fed in making the right decisions to support the economy.

So, if you're planning to make a move in the real estate market, it's essential to stay informed and prepared for any changes that may come your way. And what better way to do that than by attending Inman's upcoming events? Join the industry's best at Connect Miami, Luxury Connect, and Inman Connect Las Vegas to network, learn, and stay ahead of the curve. Visit inman.com/events to discover more and secure your spot at these must-attend events.

Keep an eye on the market, stay informed, and get ready for an exciting year ahead in real estate!

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