Rising mortgage rates are “closing the door” on opportunities for homeowners to refinance at lower rates, but demand for purchase loans remains steady, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

Rates for 30-year conforming mortgages averaged 3.52 percent, the highest since March 2020 when much of the country buckled under locked downs and other pandemic challenges. The rate was up from 3.33 percent a week earlier, according to the MBA. Although points decreased to 0.45 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.

The survey showed that during the week ending Jan. 7, applications for purchase loans were up a seasonally adjusted 2 percent compared to the week before. Requests for purchase loans were down 17 percent from the same time last year, however. Demand for refinancing was essentially unchanged from week to week, but down 50 percent from a year ago.

Joel Kan

“The housing market started 2022 on a strong note,” said MBA forecaster Joel Kan, in a statement. “Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9 percent, and VA applications increasing more than 5 percent. MBA expects solid growth in purchase activity this year, as demographic drivers and the strong economy support housing demand. However, the strength in growth will be dependent on housing inventory growing more rapidly to meet demand.”

FHA mortgages are popular with first-time homebuyers, who made up 34 percent of  homebuyers in 2021, up from 31 percent in 2020 but in line with historical trends, according to the National Association of Realtors. As home prices and mortgage rates continue to climb, it’s unclear how many would-be first-time buyers are being priced out of the market.

Median home sale prices hit a new all-time high in December as the number of homes for sale dropped to a record low, according to an analysis by Redfin.

Kan noted that mortgage rates “were up significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher.” The MBA’s survey showed 30-year fixed rate loans hitting 3.52 percent, the highest level since March 2020.

“Rates at these levels are quickly closing the door on refinance opportunities for many borrowers,” Kan said. “Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020.”

In a Dec. 21 forecast, MBA economists said they expect mortgage purchase loan volume to grow by 8 percent in 2022, to $1.739 trillion. But the bottom is expected to fall out of the refinancing market, with refi volume projected to drop 62 percent this year to $870 billion.

For the week ending Jan. 7, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (with loan balances of $647,200 or less), rates averaged 3.52 percent, up from 3.33 percent the week before. Although points decreased to 0.45 from 0.48 (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 (with loan balances greater than $647,200) averaged 3.42 percent, up from 3.31 percent the week before. Although points decreased to 0.36 from 0.38 (including the origination fee) for 80 percent LTV loans, the effective rate increased from last week.
  • For 30-year fixed-rate FHA mortgages, rates averaged 3.50 percent, up from 3.40 percent the week before. With points increasing to 0.45 from 0.42 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
  • Rates for 15-year fixed-rate mortgages, which are popular with homeowners who are refinancing, rates averaged 2.73 percent, up from 2.60 percent the week before. With points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent LTV loans, the effective rate increased from last week.
  • For 5/1 adjustable rate mortgages (ARMs), rates averaged 3.03 percent, up from 2.45 percent the week before. Although points decreased to 0.20 from 0.33 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.

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Email Matt Carter

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