Monday, January 30, 2023

Purchase mortgage demand up 4th week in a row as rates fall

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Without adjustment for seasonal factors, demand for both purchase loans and refinancing remains at their lowest levels since 2000, according to an MBA lender survey.

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Homebuyer demand for mortgages was up slightly last week for the fourth week in a row, as rates continue to retreat from 2022 highs on expectations that the Federal Reserve is poised to slow the pace of rate hikes, 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 a seasonally adjusted 4 percent last week when compared to the week before but down 41 percent from a year ago. Requests to refinance were down 13 percent week over week and 86 percent from a year ago.

“The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes,” MBA Deputy Chief Economist Joel Kan said in a statement. “Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity.”

Mortgage rates retreat from 2022 highs


The Optimal Blue Mortgage Market Indices, which are updated daily, show rates for 30-year fixed-rate have fallen by more than half a percentage point since hitting a 2022 high of 7.16 percent on Oct. 24.

The MBA surveys show demand for purchase loans picked up for the first time in nearly two months during the week ending Nov. 4. After adjusting for seasonal factors, purchase loan applications have now posted week-over-week gains for four consecutive weeks.

But on an unadjusted basis, demand for both purchase loans and refinancing are at their lowest levels since 2000, Kan said. That’s because mortgage rates are nearly double what they were a year ago and because homebuyer demand usually cools in the fall.

For the week ending Nov. 25, 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 6.49 percent, down from 6.67 percent the week before. With points remaining at 0.68 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased to 6.68 percent.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 6.35 percent, up from 6.30 percent the week before. While points decreased to 0.61 from 0.74 (including the origination fee) for 80 percent LTV loans, the effective rate increased to 6.52 percent.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.57 percent, down from 6.66 percent the week before. While points increased to 1.14 from 1.01 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 6.90 percent.
  • Rates for 15-year fixed-rate mortgages averaged 6.02 percent, down from 6.08 percent the week before. With points decreasing to 0.69 from 0.70 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased to 6.19 percent.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 5.48 percent, down from 5.78 percent the week before. While points increased to 0.89 from 0.73 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 5.81 percent.

Forecasters expect mortgage rates will continue to fall as the Fed dials back the pace of its short-term interest rate hikes. The Fed has raised the federal funds rate six times this year, bringing the target for the benchmark rate to between 3.75 and 4 percent.

In a Nov. 21 forecast, economists at Fannie Mae said they expect Fed policymakers to slow the pace of rate hikes at upcoming meetings and wrap the campaign up when the federal funds rate hits about 5 percent.

But even if the Fed stops hiking rates, it’s expected to continue “quantitative tightening” by trimming a balance sheet that ballooned to nearly $9 trillion during the pandemic.

Fed trimming its $9 trillion balance sheet


Assets held by the Federal Reserve through quantitative easing purchases now include $5.53 trillion in long-term Treasurys and $2.67 trillion in mortgage-backed securities. Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis

During much of the pandemic, the Fed drove down long-term interest rates to historic lows by increasing its holdings of Treasurys by $80 billion a month and growing its mortgage-backed securities portfolio by $40 billion a month. After winding down its “quantitative easing” program, the Fed started raising the federal funds rate in March.

The Fed started trimming its balance sheet in June and is now letting $35 billion in mortgages and $60 billion in Treasurys roll off its books every month. This quantitative tightening could not only keep interest rates from falling but has the potential to create liquidity issues for banks.

“The Fed has expressed confidence it can draw down reserves in a way that will not affect its interest rate target,” Reuters reported. In a paper published last week, economists at the New York Fed, the Bank for International Settlements and Stanford University warned that “the way banks are managing liquidity, even in a time of ample liquidity, could challenge that view.”

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