Rising demand for purchase loans and refinancing as rates climb to new highs underscores volatility, with Fed expected to continue rate hikes, according to the MBA’s latest Mortgage Applications Survey.

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Demand for home loans picked up last week for the first time in six weeks, even as mortgage rates continued to climb past 6 percent in anticipation of another Fed rate hike this week, according to a weekly lender survey by the Mortgage Bankers Association.

The MBA’s Weekly Mortgage Applications Survey showed requests for purchase loans were up by a seasonally adjusted 1 percent from the week before, but down 30 percent from a year ago.

Requests to refinance were up 10 percent week over week, but down 83 percent from a year ago. With the double-digit uptick, requests to refinance accounted for 32.5 percent of applications, up from 30.2 percent week before.

Joel Kan

“Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike,” said MBA forecaster Joel Kan. “Mortgage rates followed suit last week, increasing across the board, with the 30-year fixed rate jumping 24 basis points to 6.25 percent – the highest since October 2008.”

The weekly gain in applications, despite higher rates, “underscores the overall volatility right now as well as Labor Day-adjusted results the prior week,” Kan said.

Requests for adjustable-rate mortgages (ARMs) accounted for 9.1 percent of total applications, unchanged from the week before.

During the week ending Sept. 16, the MBA 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 6.25 percent, up from 6.01 percent the week before. Although points decreased to 0.71 from 0.76 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate increased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 5.79 percent, up from 5.56 percent. With points increasing to 0.46 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 5.85 percent, up from 5.71 percent the week before. With points increasing to 1.15 from 1.12 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages, popular with homebuyers refinancing, rates averaged 5.40 percent, up from 5.30 percent the week before. With points increasing to 1.06 from 0.89 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 ARMs, rates averaged 5.14 percent, up from 4.83 percent the week before. With points increasing to 0.99 from 0.52 (including the origination fee) for 80 percent LTV loans, the effective rate increased from last week.

Mortgage rates hit new 2022 highs

The Optimal Blue Mortgage Market Indices, which are updated daily, showed rates for 30-year fixed-rate mortgages continuing to surge past the 6 percent threshold.

The last time that happened, in mid June, mortgage rates quickly retreated below 6 percent on expectations that the Federal Reserve would dial back its aggressive monetary policy if signs of an economic slowdown emerged.

But last month, Federal Reserve Chair Jerome Powell warned that the Fed will continue to fight inflation “forcefully” even if that brings “some pain to households and businesses.” The most recent Bureau of Labor report showed inflation remains persistent in core categories including housing.

Rates on 10-year Treasurys — a barometer for mortgage rates — hit 3.6 percent Tuesday, the highest they’ve been since 2011. Bond market investors are growing more certain that Fed policymakers will continue raising the short-term federal funds rate in 75-basis point increments at its upcoming meetings.

The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows traders this week pricing in a 82 percent chance of a 75-basis point hike in the short-term federal funds rate Wednedsay, and a 58 percent of a matching hike on Nov. 2. Historically, the Fed has tended to make smaller adjustments of 25 basis points when raising short-term interest rates.

Although the Fed doesn’t have direct control over mortgage rates, it’s also been withdrawing the support it provided to mortgage markets during much of the pandemic to keep rates low.

Having wound down a “quantitative easing” program was adding $40 billion in mortgage-backed securities and $80 billion in U.S. Treasurys to the Fed’s nearly $9 trillion balance sheet every month during much of the pandemic, the central bank is now engaged in “quantitative tightening” and is expected to shed as much as $60 billion in government debt and $35 billion in mortgages each month.

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Email Matt Carter

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