Mortgage Demand Unexpectedly Rises Amidst Continued Rate Hikes
Despite a fourth consecutive week of increasing mortgage rates, the demand for mortgages saw a surprising upswing last week. According to the Mortgage Bankers Association (MBA), total application volume climbed 1.7% compared to the previous week, defying expectations in a market still grappling with high borrowing costs. This increase, however, comes with some nuances, particularly concerning the contrasting performance of purchase and refinance applications, highlighting the complex interplay of factors influencing the housing market.
Key Takeaways: A Rollercoaster Ride for the Housing Market
- Mortgage application volume increased by 1.7% last week, defying the trend of rising interest rates.
- 30-year fixed-rate mortgages reached 6.90%, the highest since July, impacting both purchase and refinance applications.
- Purchase applications, while up 2% week-over-week, remain 1% lower than the same period last year.
- Refinance applications, although up 2% weekly, are 43% higher year-over-year, driven by increased VA loan applications.
- Geopolitical events, specifically the Ukraine-Russia conflict, briefly influenced bond yields and mortgage rates, showcasing the market’s sensitivity to global uncertainty.
Rising Rates, Rising Demand: A Paradoxical Trend?
The rise in mortgage applications against a backdrop of escalating interest rates presents a fascinating conundrum. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) climbed to 6.90%, up from 6.86% the previous week, marking the highest point since July. This increase, however, hasn’t dampened demand entirely. The MBA attributes this, in part, to the fluctuating availability of homes for sale. “For-sale inventory has loosened in some markets,” explains Joel Kan, an MBA economist, “and some potential buyers have been able to take advantage of increasing supply and lower FHA rates which were down slightly in comparison to the conforming 30-year fixed rate.”
Breaking Down Purchase Applications
While purchase applications saw a modest 2% week-over-week increase, a closer examination reveals a more complex picture. Compared to the same week last year, purchase demand remains 1% lower. This suggests that despite the slight uptick, the market is still facing significant headwinds from persistently high interest rates. The increase was driven predominantly by conventional and FHA loans, with FHA purchase applications witnessing a notable 7% surge. This points towards a potentially increased reliance on government-backed loans by first-time homebuyers possibly more sensitive to interest rate fluctuations.
Refinance Boom Continues Despite High Rates
In stark contrast to the tempered growth in purchase applications, refinance applications experienced a robust 2% week-over-week increase. More significantly, refinance applications are up a substantial 43% compared to the same week last year. This surge is heavily influenced by a 10% jump in VA applications suggesting a surge in veteran home refinancing activity, benefiting from potentially favorable loan terms and lower overall costs.
The Geopolitical Factor: A Flight to Safety?
The week’s events extended beyond the confines of domestic economic indicators. News concerning the Ukraine-Russia conflict injected a degree of volatility into the financial markets. Initially, mortgage rates edged higher on Monday; however, on Tuesday, they experienced a dip following the announcement of the US authorizing Ukraine to use long-range missiles. This triggered a “flight to safety” among investors, leading to a decrease in bond yields, which in turn affected mortgage rates. Matthew Graham, chief operating officer at Mortgage News Daily, commented, “The improvement in mortgage rates was wholly underwhelming relative to the news headlines — likely because it’s far from the first such threat from Russia, or because traders are skeptical that anyone wants to push any of the red buttons on the ‘mutually assured destruction’ machine.” This highlights the interconnectedness of global events and their impact on seemingly localized markets like the US mortgage industry.
Looking Ahead: Navigating Uncertainty
The current state of the mortgage market reflects a multifaceted reality. Despite the unexpected rise in applications last week, the underlying pressures of high interest rates persist. The increase in purchase applications might signal some easing of supply shortages or a change in buyer behavior but remains modest compared to year-ago figures. Meanwhile, the consistent growth in refinance applications, primarily driven by VA loans, indicates a segment of the market actively seeking to improve their financial standing through refinancing opportunities. The impact of geopolitical events underscores the unpredictable nature of the economic landscape and the susceptibility of lending markets to external shocks. Whether this upward trend in overall mortgage demand will persist in the face of continuing rate increases remains to be seen, contingent upon various factors affecting both supply and demand dynamics in the housing sector.
