Demand for purchase mortgages held steady last week even in the face of rising mortgage rates — an auspicious sign heading into the spring homebuying season.

A weekly survey released Wednesday by the Mortgage Bankers Association showed applications for purchase mortgages during the week ending March 25 were up a seasonally adjusted 1 percent from the week before.

Demand for purchase loans was down 10 percent from a year ago. But given the recent rise in rates and continued inventory shortages, the latest trends in mortgage applications were still seen as a positive by MBA Chief Economist Mike Fratantoni.

Mike Fratantoni

“Even with the ongoing climb in rates, purchase application volumes were little changed last week,” Fratantoni said in a statement. “This is particularly auspicious, as we are now in the beginning of the spring homebuying season, and those shopping for homes are struggling with not only higher and more volatile mortgage rates, but also an ongoing shortage of homes on the market.”

With rates on 30-year fixed-rate mortgages continuing an upward march toward 5 percent last week, the MBA’s Weekly Mortgage Applications survey showed requests to refinance were down 15 percent week over week, and 60 percent from a year ago.

Given those hurdles, Fratantoni said “it appears to be promising news that purchase application volume has not declined, as many potential buyers are likely feeling the squeeze in their purchasing power from the jump in rates.”

Borrowers may soon get a reprieve from this year’s relentless rise in mortgage rates, which has largely been driven by fears that the Federal Reserve will continue monetary policy tightening to rein in inflation.

Those fears eased somewhat this week, with 10-year Treasury yields and 30-year mortgage rates retreating Tuesday as Ukraine ceasefire talks eased worries about inflation.

For the week ending March 25, the Mortgage Bankers Association reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 4.80 percent, up from 4.50 percent the week before. Although points decreased to 0.56 from 0.59 (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 $647,200) averaged 4.40 percent, up from 4.11 percent the week before. Although points decreased to 0.44 from 0.51 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 4.66 percent, up from 4.40 percent the week before. While points decreased to 0.71 from 0.73 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages averaged 4.01 percent, up from 3.76 percent the week before. Points remained unchanged at 0.55 (including the origination fee) for 80 percent LTV loans, so the effective rate also increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 3.70 percent, up from 3.39 percent the week before. Points remained unchanged at 0.54 (including the origination fee) for 80 percent LTV loans, so the effective rate also increased from last week.

Fed policymakers on March 16 approved a 25-basis-point increase in the federal funds rate, the first short-term interest rate hike since 2018. Some Fed policymakers had been advocating for a more dramatic 50-basis-point increase to combat inflation, a move that’s still on the table for the Federal Open Market Committee’s next meeting, which wraps up on May 4.

Economists are also watching closely for more insights on when the Fed will start letting the nearly $9 trillion in government debt and mortgage-backed securities the central bank is carrying on its balance sheet run off.

At the onset of the pandemic, the Fed helped bring mortgage rates to historic lows by increasing its holdings of Treasurys and mortgage debt by $120 billion a month. Mortgage rates started climbing when the Fed announced it would taper those purchases, a process it completed this month.

Having wound down its “quantitative easing” program, some Fed policymakers are eager to begin reducing the central bank’s nearly $9 trillion balance sheet at a coming meeting — a move that could put more upward pressure on mortgage rates. As of March 23, the Fed had $5.76 trillion in government debt and $2.74 trillion in mortgage-backed securities on its books, some of which it took on an earlier round of quantitative easing to help the nation weather the 2007-09 recession.

Fed quantitative easing approaching $9 trillion

Assets held by the Federal Reserve through quantitative easing purchases now total $8.5 trillion, including $5.76 trillion of long-term Treasurys and $2.74 trillion in mortgage-backed securities. Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis.

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Email Matt Carter

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