By
Chimamanda U. Martha
December 6th, 2023
The demand for mortgage in the United States nosedived at the tail end of 2022 following a two-week reprieve.
Mortgage demand in the US ended 2022 down 13.2%, with interest rates on the rise. Following a brief lull in the first half of December last year, mortgage application volume sank substantially at the end of last week.
The reason for this downturn was higher mortgage interest rates. For example, the average contract interest rate for a 30-year fixed-rate mortgage went up to 6.58%. Barely two weeks ago, this figure stood at 6.34%, rising from 3.33% at the end of 2021. Most 30-year fixed-rate mortgages came with conforming balances of no more than $647,200 for loans and a 20% down payment.
According to the seasonally adjusted index by the Mortgage Bankers Association, demand for refinancing declined 16.3% from two weeks ago. In addition, this demand, which is ultra-sensitive to weekly interest rate changes, is down a massive 87% from the 2021 period.
The MBA remained closed last week due to the festive season.
MBA Economist Analyzes 2022 Mortgage Demand Decline
Commenting on the waned 2022 mortgage demand development, MBA economist Joel Kan said that “mortgage rates are lower than October 2022 highs but would have to decline substantially to generate additional refinance activity.”
In addition, Kan explained:
“Purchase applications have been impacted by slowing home sales in both the new and existing segments of the market. Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective homebuyers out of the market.”
Furthermore, the MBA economist also pointed out the recessionary threat as an added causative factor for the application decline.
As it stands, mortgage applications for home purchases are down 12.2% from two weeks earlier. Also, this figure was at a 42% drawdown year-over-year (YoY) and ended 2022 at its lowest level since 1996.
Although mortgage rates began 2023 marginally lower, attention would likely shift to the crucial monthly employment report due Friday. It is a given that the incoming report would further impact rates. However, it remains unclear whether this influence would be for better or worse.
October Highs
On October 4th last year, reports stated that mortgage interest rates were riding on a 14-year high. At the time, this surge triggered fears and talks of fast-tracked recession across the housing space. However, Bankrate’s chief financial analyst Greg McBride noted that the increase did little to slow down inflationary pressure. As he put it at the time:
“This cumulative effect of this sharp rise in rates has cooled the housing market and caused the economy to start slowing, but hasn’t done much to lower inflation.”
Besides the 30-year fixed mortgage rate, the 15-year variation also grew to 6.16% from 5.80% last October. Furthermore, 5/1 ARM increased from 4.90% to 5.25% within a week, while 30-year fixed jumbo loans climbed from 6.58% to 7.06%.
Although interest rates remain high presently, the Fed previously suggested that it would begin to taper to avert a full-blown recession.