Mortgage rates have hit their highest point since 2001 amid the Federal Reserve’s months-long move to hike interest rates, contributing to more uncertainty in a U.S. housing market that is already in decline.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) rose to 7.14% during the week ending Nov. 4, 2022, according to the latest Mortgage Bankers Association’s Weekly Mortgage Applications Survey. That was up from 7.06% the previous week and the highest rate in more than two decades, Bloomberg reported.
The Market Composite Index, a measure of mortgage loan application volume, fell 0.1% on a seasonally adjusted basis vs. a week earlier. On an unadjusted basis, the index declined 2%. The overall measure of applications, which includes refinancing, dropped to its lowest level in 25 years, while the refi index sank to a 22-year low.
“Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation,” Joel Kan, MBA’s Vice President and Deputy Chief Economist, said in a statement.
Mortgages rates climbed across the board during the latest survey period, including for jumbo loan balances, FHA loans and 15-year fixed-rate mortgages. There’s little reason to believe rates will reverse course anytime soon, considering that the Fed seems determined to keep raising rates to help tame inflation.
The impact on the mortgage market could be substantial, said Curtis Wood, founder & CEO of Bee, a mobile mortgage app built on AI and the blockchain.
“In a lot of ways this is a more difficult market than ’08 for lenders, and it’s going to get worse before it gets better as rates have an easier pathway to 8% than they do 6%,” Wood told GOBankingRates in an email. “A lot of small to midsize lenders won’t make it through it, as we’ve already seen happen with industry consolidation, closures, bankruptcies and fire sales this year.”
Higher rates mean “more headwinds for the mortgage market,” he added. Those headwinds will impact mortgage originations as well as margins, credit availability and buyer affordability.
“I expect fixed-rate origination volume to drop as rates rise, and adjustable-rate mortgages to gain steam as a loan of last resort for certain buyers,” Wood said.
Such developments will likely have a cascading effect on the housing market, which is already in choppy water.
Median home values have declined three straight months as of September 2022, according to the Black Knight Home Price Index. Meanwhile, pending home sales in September fell for the fourth straight month, the National Association of Realtors recently reported.
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