Even with increase, there was an uptick in mortgage applications last week

Durrant Pate/Contributor

Mortgage rates in the United States (US) continue to soar climbing for a fourth consecutive week to the highest level since mid-November.

America’s Mortgage Bankers Association is reporting that the contract rate on a 30-year fixed mortgage rose eight basis points to 6.79 per cent, based on its latest survey, which covers over 75 per cent of all US retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. 

The average contract interest rate for 30-year fixed-rate mortgages with loan balances (US$726,200 or less) increased to 6.79 per cent from 6.71 per cent with points increasing to 0.80 from 0.77. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than US$726,200) increased to 6.49 per cent from 6.44 per cent with points increasing to 0.59 from 0.49.

Rates on 15-year mortgages

The average contract interest rate for 15-year fixed-rate mortgages increased to 6.25 per cent from 6.13 per cent with points increasing to 1.01 from 0.93 while the average contract interest rate for 5/1 adjustable-rate mortgage (ARM) increased to 5.75 per cent from 5.73 per cent with points increasing to 0.95 from 0.86.

The Association’s Vice President and Deputy Chief Economist, Joel Kan explains that the rise in the 30-year fixed rate is 270 basis points higher than a year ago.

He states that, “even with higher rates, there was an uptick in applications last week but this was in comparison to two weeks of declines to very low levels, including a holiday week”.

Comparing the application indices from a year ago, he noted that purchase applications were still down 42 per cent and refinance activity was down 76 per cent, as “many borrowers are waiting on the sidelines for rates to come back down”.

This rise comes as investors brace for more rate hikes from the Federal Reserve this year than previously expected, pushing rates higher across the Treasury curve.

The small recovery in demand to purchase home still signals “many borrowers are waiting on the sidelines for rates to come back down,” Kan noted.

Rise in mortgage applications

Mortgage applications increased 7.4 per cent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 3, 2023. The Market Composite Index, a measure of mortgage loan application volume, increased 7.4 per cent on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index increased nine per cent compared with the previous week. The Refinance Index increased nine per cent from the previous week and was 76 per cent lower than the same week one year ago. The seasonally adjusted Purchase Index increased seven per cent from one week earlier.

The unadjusted Purchase Index increased nine per cent compared with the previous week and was 42 per cent lower than the same week one year ago. The refinance share of mortgage activity increased to 28.9 per cent of total applications from 28.7 per cent the previous week. The ARM share of activity increased to 8.6 per cent of total applications.

While optimism among builders remains strong in the new construction market, there continues to be a pullback on the pace of home construction.

Housing starts remain strong

Housing starts fell 4.5 per cent in the first month of the year to an annualized rate of 1.31 million homes, down 21.4 per cent from January 2022 levels, the Commerce Department said February 16. Housing starts for single family homes dipped 4.3 per cent to 841,000 annualized rate, while multi-family housing starts came in at a pace of 457,000.

Permits to build rose 0.1 per cent to a 1.34 million annualized rate, down 27 per cent from the same month in 2022. However, permits to build single-family units slid nearly two per cent to 718,000 annualized, while multi-family permits reached 563,000 in January.

During this time, mortgage rates were trending lower, the economy added 517,000 jobs, and inflation remained sticky.