The record-high revaluation of home prices is pushing more and more buyers to the side and is finally taking the bang from the pandemic real estate boom. At the same time, weekly mortgage demand is falling 6.9%, according to the seasonally adjusted index of the Mortgage Bankers Association. That is the lowest level in almost a year and a half.
Home purchase mortgage applications fell 5% weekly and 17% annually. That’s the slowest pace since early May 2020 when the lockdowns were in full effect.
Demand is now plummeting due to declining affordability, especially at the lower end of the market where demand is strongest. Home prices rose more than 14% year-over-year in April, according to the latest S&P CoreLogic Case-Shiller national price index, released Tuesday. Craig Lazzara of S&P Dow Jones Indices called the unprecedented jump “really extraordinary”.
Both the type and amount of loans borrowers are now applying for also indicate an overheating in the home market.
“Purchase requests for conventional loans fell last week to their lowest level since last May,” said Michael Fratantoni, chief economist for the Mortgage Bankers Association. “The average loan size for total purchase requests has increased, suggesting that first-time home buyers who typically receive smaller loans are likely to be driven out of the market due to the lack of entry-level properties for sale.”
Housing demand spiked a year ago as more Americans looked for more space in larger homes, especially in suburbs, due to Covid-19 home orders. Last month, home sales rebounded to their highest level since 2005, shocking even the National Association of Realtors.
Mortgage rates also hit more than a dozen record lows in the past year, adding purchasing power to buyers and helping to drive house prices higher.
Now, for buyers, higher mortgage rates do just the opposite. The average contract rate for 30-year fixed-rate mortgages with corresponding loan balances ($ 548,250 or less) increased from 3.18% to 3.20%, with the points going from 0.48 to 0.39 (including the initial fee) for loans with a decrease of 20% decreased payment. At the beginning of this year, this rate was around 2.85%.
The rate hike resulted in a decrease in home loan refinance requests by 8% per week. The refinancing volume is now 15% lower than in the same week a year ago.
“Mortgage rates were volatile last week as investors tried to gauge the Federal Reserve’s upcoming moves amid several different signals, including rising inflation, mixed job data, strong consumer spending and a supply-side housing market that has led to rapid housing searches.” -Price growth, “added Fratantoni.