With a Fed meeting looming next week, rates on 30-year fixed-rate mortgages have surged well past the 7 percent threshold, a Mortgage Bankers Association survey released Wednesday shows.

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Demand for home loans slipped again last week to the lowest level in more than two decades as rates on 30-year fixed-rate mortgages surged well past the 7 percent threshold, according to a weekly survey of lenders by the Mortgage Bankers Association released Wednesday.

The MBA’s Weekly Mortgage Applications Survey showed demand for purchase loans was down by a seasonally adjusted 2 percent last week compared to the week before, and 42 percent from a year ago. Requests to refinance were essentially unchanged from the week before, but down 86 percent from a year ago.

Joel Kan

“Mortgage rates increased for the 10th consecutive week, with the 30-year fixed rate reaching 7.16 percent, the highest rate since 2001, MBA Deputy Chief Economist Joel Kan said, in a statement. “The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997.”

Looking only at requests for purchase loans, Kan said homebuyer demand for mortgages slipped to levels not seen since 2015. Adjustable-rate mortgages, which are popular with buyers looking to minimize their monthly payments, accounted for 12.7 percent of applications, down slightly from 12.8 percent the week before.

Requests for FHA loans, which are popular with first-time homebuyers with little saved for a down payment, accounted for 13.9 percent of all applications, up from 13.6 percent the week before.

“Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates,” Kan said.

Mortgage rates break the 7% threshold

The Optimal Blue Mortgage Market Indices showed rates for 30-year fixed-rate loans broke through the 7 percent threshold on Oct. 19, and have continued to push on to new 2022 highs.

For the week ending Oct. 21, 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 7.16 percent, up from 6.94 percent the week before. While points decreased to 0.88 from 0.95 (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 6.53 percent, up from 6.31 percent the week before. With points increased to 0.68 from 0.67 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.79 percent, up from 6.63 percent the week before. Although points decreased to 1.59 from 1.60 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • Rates for 15-year fixed-rate mortgages averaged 6.39 percent, up from 6.09 percent the week before. With points increased to 1.52 from 1.18 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 ARMs, rates averaged 5.86 percent, up from 5.65 percent the week before. Although points decreased to 0.88 from 0.90 (including the origination fee) for 80 percent LTV loans, the effective rate increased.

Mortgage rates have soared this year as Federal Reserve policymakers implemented a series of drastic rate hikes aimed at reining in inflation. The Fed is expected to implement its fourth 75-basis point rate hike of the year next week.

But bond market investors are growing less certain about the prospects of another hike of the same magnitude when the Fed holds its final meeting of the year on Dec. 14. Several Fed policymakers have hinted that they’d be open to a smaller 50-basis point increase in December if they see signs that inflation is starting to ease.

The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows bond market investors pricing in a 94 percent probability of a 75-basis point rate hike on Nov. 2, but only a 49 percent chance of an identical hike in December.

Yields on 10-year Treasurys, which are considered a barometer of where mortgage rates might be headed next, have already retreated from 2022 highs registered Oct. 21.

With rising rates making homes less affordable, and because many existing homeowners may feel locked in to the low rate on their existing mortgage, economists at Fannie Mae are forecasting that home sales will fall by 18 percent this year and by another 21 percent in 2023, to 4.47 million.

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Email Matt Carter

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