Listings shortages and high home prices are keeping a lid on homebuyer demand as mortgage rates continue to rise, according to the Mortgage Bankers Association’s latest weekly lender survey.

During the week ending Oct. 15, demand for purchase loans was down a seasonally adjusted 5 percent from the week before, and 12 percent from a year ago, as rates on 30-year fixed-rate loans climbed to highs not seen since April.

Joel Kan

“Insufficient housing supply and elevated home-price growth continue to limit options for would-be buyers,” MBA forecaster Joel Kan said in a statement.

Demand for refinancing was also down 7 percent from a week ago, and 22 percent from a year ago. It was the fourth consecutive weekly decline in refinance applications, bringing the MBA refinance index to its lowest level since July.

The Mortgage Bankers Association reported average rates for the following types of loans during the week ending Oct. 15:

  • For 30-year fixed-rate conforming mortgages (loan balances of $548,250 or less), rates averaged 3.23 percent, up from 3.18 percent the week before. With points decreasing to 0.35 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased from last week.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $548,250) averaged 3.26 percent, up from 3.22 percent the week before. With points increasing to 0.33 from 0.29, the effective rate increased from last week.
  • For 30-year fixed-rate FHA mortgages, rates averaged 3.17 percent, down from 3.20 percent the week before. Although points increased to 0.32 from 0.31, the effective rate decreased from last week.
  • Rates for 15-year fixed-rate mortgages averaged 2.54 percent, up from 2.48 percent the week before. With points remaining unchanged at 0.29, the effective rate increased from last week.
  • For 5/1 adjustable rate mortgage (ARM) loans, rates averaged 3.09 percent, up from 3.08 percent the week before. With points increasing to 0.30 from 0.26, the effective rate also increased from last week.

With the Federal Reserve expected to begin tapering its purchases of mortgage-backed securities as soon as November, market forces are pushing mortgage rates higher.

In an Oct. 17 forecast, MBA economists projected that rates on 30-year fixed-rate mortgages will hit 4 percent by the end of next year, before leveling off at 4.3 percent in the second half of 2022.

MBA and Fannie Mae mortgage rate forecasts

In their most recent forecast, economists at Fannie Mae envisioned a more gradual rise, with rates on staying in the mid-threes next year. One reason for the diverging views could be that Fannie Mae forecasters say they’ve become more pessimistic about how long it will take to resolve ongoing supply chain disruptions that have slowed economic growth during the recovery from the pandemic.

Forecasters at the MBA and Fannie Mae both see purchase loan originations growing by 9 percent next year, and that demand for refis will fall by double digits as rates continue to rise. The MBA sees refinance originations dropping by 62 percent next year, while Fannie Mae projects a 47 percent drop in refis.

Mike Frantantoni

“The job market should continue to improve as the pandemic is hopefully behind us, helping to get the economy to full employment by the end of this year,” MBA Chief Economist Mike Fratantoni said in a statement accompanying the trade group’s forecast. “Household incomes will rise, more homes will be on the market, and home sales should meaningfully increase as a result, even in the face of somewhat higher mortgage rates.”

One silver lining inside the cloud that rising home prices have cast over homebuyer demand is that Fannie Mae and Freddie Mac’s federal regulator is expected to boost their conforming loan limit by at least $75,000 next year, with a number of lenders already offering “conforming loans” of at least $625,000 in advance of an official announcement next month.

Email Matt Carter

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