Real Estate

Rising Home Prices May Be Crimping Demand For Purchase Mortgages

Demand for purchase mortgages fell last week to the lowest level since May 2020, which could be a sign first-time homebuyers are getting squeezed out of the market.

Demand for purchase mortgages fell last week to the lowest level since May 2020, which could be a sign that first-time homebuyers are getting squeezed out of the market due to the lack of affordable homes.

The Mortgage Bankers Association’s Weekly Mortgage Applications Survey showed demand for purchase loans during the week ending June 25 was down 5 percent from the week before after accounting for seasonal factors, and was 17 percent lower than a year ago.

Mike Frantantoni

“The average loan size for total purchase applications increased, indicating that first-time homebuyers, who typically get smaller loans, are likely getting squeezed out of the market due to the lack of entry-level homes for sale,” MBA Chief Economist Mike Fratantoni said in a statement.

National home prices posted annual gains of 14.6 percent in April, the biggest jump since 2005, according to the latest S&P/Case-Shiller U.S. National Home Price Index.

But Fratantoni said interest rates are also a factor, with applications to refinance also down 8 percent week over week and 15 percent from a year ago.

“Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals, including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” Fratantoni said.

The MBA reported average rates for the following types of loans during the week ending June 25:

  • For 30-year fixed-rate conforming mortgages (loan balances of $548,250 or less), rates averaged 3.20 percent, up from 3.18 percent the week before. But points decreased to 0.39 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, so the effective rate remained unchanged from last week.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $548,250) averaged 3.23 percent, down from 3.26 percent the week before. With points decreasing to 0.33 from 0.44, the effective rate also decreased from last week.
  • For 30-year fixed-rate FHA mortgages, rates averaged 3.19 percent, down from 3.21 percent the week before. With points remaining unchanged at 0.34, the effective rate also decreased from last week.
  • Rates for 15-year fixed-rate mortgages averaged 2.56 percent, down from 2.58 percent the week before. Points decreased to 0.37 from 0.39, so the effective rate also decreased from last week.
  • For 5/1 adjustable-rate mortgage (ARM) loans, rates averaged 2.98 percent, up from 2.69 percent the week before. Although points decreased to 0.23 from 0.26, the effective rate still increased from last week.

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