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Demand for purchase loans picks up, but so do mortgage rates

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Homebuyer demand for mortgages was up for a second week in a row last week, even as mortgage rates continued to edge back up toward previous highs for the year, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA’s Weekly Mortgage Applications Survey showed applications for purchase loans were up by a seasonally adjusted 2 percent last week compared to the week before, but down 26 percent from a year ago. Requests to refinance were up 13 percent week over week, but down 29 percent from a year ago.

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Joel Kan

Homebuyers “continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging,” MBA Deputy Chief Economist Joel Kan said in a statement. “The average loan size on a purchase application was $416,800, the highest level in six weeks. Home prices in many markets have been supported by low inventory and resilient housing demand for available homes.”

Mortgage rates edging back up

Mortgage rates have been slowly creeping up in September. But FHA mortgages and conforming loans backed by Fannie Mae and Freddie Mac have yet to match 2023 highs seen in August. Those loans were the drivers of last week’s uptick in purchase loan demand, Kan said.

Rates for 30-year fixed-rate conforming loans eligible for purchase by Fannie and Freddie averaged 7.21 percent Tuesday, according to daily rate lock data tracked by the Optimal Blue Mortgage Market Indices. That’s up from 7.08 percent on Sept. 1, but short of the 2023 high of 7.30 percent registered Aug. 22.

Rates on 30-year FHA loans, which also hit a 2023 high of 7.10 percent on Aug. 22, have since dipped below 7 percent on some days and averaged 7.01 percent Tuesday.

But rates on jumbo mortgages too big for purchase by Fannie Mae and Freddie Mac have been more volatile, spiking to a new 2023 high of 7.67 percent on Sept. 7. After retreating to 7.24 percent last week, jumbo loan rates had climbed back to 7.40 percent Tuesday.

Wrapping up a two-day meeting Wednesday, the Federal Reserve left short-term interest rates where they have been since July, as expected.

But the Fed could still hike rates later this year or keep rates higher for longer if inflation doesn’t moderate. In July, the Fed implemented its 11th rate hike since March 2022, bringing the short-term federal funds rate to a target of between 5.25 percent and 5.5 percent, the highest level since 2001.

Futures markets tracked by the CME FedWatch Tool put the probability of another Fed rate hike this year at just one in three. But futures markets predict only a 15 percent chance that the Fed will start to bring rates down by March in time for the spring homebuying season.

In a forecast released Monday, forecasters at Fannie Mae said they believe continued strength in the economy could keep mortgage rates from coming down next year as much as previously expected.

Mortgage rates projected to ease next year

FNMA MBA mortgage rates Sept 2023

Source: Fannie Mae, Mortgage Bankers Association forecasts.

In August, Fannie Mae analysts were expecting rates on 30-year fixed-rate conforming mortgages to drop to an average of 6 percent during the fourth quarter of next year. They now see mortgage rates peaking at 7.1 percent during the final three months of 2023, before easing to 6.3 percent by Q4 2024.

MBA economists, who had predicted last month that rates on 30-year loans would average 5 percent by Q4 2024, now expect rates will average 5.4 percent by the end of next year.

For the week ending Sept. 15, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 7.31 percent, up from 7.27 percent the week before. With points unchanged at 0.72 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 7.32 percent, up from 7.25 percent the week before. With points increasing to 0.80 from 0.72 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 7.08 percent, up from 7.04 percent the week before. Although points decreased to 0.92 from 0.98 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing averaged 6.62 percent, down from 6.72 percent the week before. Although points increased to 1.08 from 1.01 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.42 percent, down from 6.59 percent the week before. With points decreasing to 1.10 from 1.16 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

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