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Today’s homebuyers appear to be increasingly sensitive to weekly moves in mortgage rates. While home prices are easing some, affordability is still a major hurdle, especially as more first-time buyers enter the market.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.43% from 6.30% the previous week, with points rising to 0.63 from 0.55 (including the origination fee) for loans with a 20% down payment.
As a result, mortgage applications to purchase a home dropped 10% from the week before, according to the Mortgage Bankers Association’s seasonally adjusted index. Buyer demand was 36% lower than the same week one year ago when the 30-year fixed-rate mortgage averaged 5.20%.
“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act,” wrote Joel Kan, MBA’s chief economist, in a release. “The 10-percent drop in FHA purchase applications, and the increase in the average purchase loan size to its highest level in a month, are other indications that first-time buyers have pulled back.”
But wealthier buyers may also be seeing new difficulties when it comes to credit. Banks had been offering better rates on jumbo loans, but that spread between jumbo and conforming loans is much tighter now, compared with last year. This has to do with recent regional bank failures that have rippled through the industry.
“As banks reduce their willingness to hold jumbo loans, we expect this narrowing trend to continue,” Kan said.
Applications to refinance a home loan decreased 6% from the previous week and were 56% lower than a year ago. The refinance share of mortgage activity increased to 27.6% of total applications from 27.0% the previous week.
Mortgage rates moved significantly higher to start this week, according to another rate survey from Mortgage News Daily. Still, rates have been bouncing between 6% and 7% for several months. Potential homebuyers may be getting used to seeing higher rates now, but home prices haven’t corrected enough yet to bring affordability back to earth.