Mortgage rates hit 9-month high, and loan demand drops further

Jb Reed | Bloomberg | Getty Images

The economic damage from the omicron variant of the coronavirus is now expected to be less than initially thought, and that has interest rates back on their upward trajectory yet again. As a result, mortgage demand fell 2.7% to end 2021, compared with two weeks before, according to the Mortgage Bankers Association’s seasonally adjusted index. [The MBA did not release application volume last week due to the holidays.]

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.33% at the end of last week from 3.27% two weeks before, with points rising to 0.48 from 0.38 (including the origination fee) for loans with a 20% down payment. That rate was 47 basis points lower the same week one year ago.

As a result, applications to refinance a home loan fell 2% last week compared with two weeks ago and were 40% lower year over year. The refinance share of mortgage activity, however, increased to 65.4% of total applications from 63.9% the previous week, due to continued weakness in the purchase loan market.

“Mortgage rates continued to creep higher over the past two weeks, as markets maintained an optimistic view of the economy,” said Joel Kan, an MBA economist. “Refinance demand continues to dwindle, as many borrowers refinanced in 2020, and in early 2021.”

Rates continued to climb at the start of this week, rising sharply Tuesday to the highest level since early April of last year, according to Mortgage News Daily, which calculates daily rates as opposed to weekly averages.

Applications for mortgages to purchase homes fell 4% from two weeks earlier and were 12% lower year over year. That was the weakest showing since October 2021. Home sales began pulling back in November, but more because of low inventory than high interest rates. Home prices also continue to gain compared with 2020, up just over 18% in November, according to CoreLogic.

“Despite supply and affordability challenges, 2021 was a record year for purchase originations,” said Kan. “MBA expects 2022 to be even stronger, with total purchase activity reaching $1.74 trillion.”

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