Home loan demand increases despite higher mortgage rates

By Real Estate News

Higher mortgage rates did not scare away potential homeowners last week. Borrower demand for home loans increased across the board, despite rates being at their highest level in over a month. 

“There are still so many borrowers looking to purchase a home. Plenty of buyers, but not enough homes for sale,” California-based mortgage loan officer Dan Stone, who works with hundreds of mortgage lenders, told HousingWire.

“Prices are still expensive, forcing buyers to look at less expensive homes or areas not as preferred. Many potential homebuyers are actively looking online, waiting for the right home and price,” Stone added.  

The latest Mortgage Bankers Association (MBA) report confirms Stone’s perceptions. 

The Market Composite Index, a measure of application volume, increased 3.7% for the week ending April 21 compared to one week earlier on a seasonally adjusted basis. The survey, conducted since 1990, covers over 75% of all U.S. retail residential mortgage applications. 

Borrowers’ demand increased for conventional and government loans, up 4.50% and 1.20% from one week earlier, respectively. Mortgage apps also rose 4.7% for home purchases and 1.7% for refinancing. 

“Both conventional and government home purchase applications increased last week. However, activity was still nearly 28% below last year’s pace, as high mortgage rates and low supply have slowed the market this year, even as home-price growth has decelerated in many markets across the country,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. 

“Refinance applications also increased last week but remained at half of last year’s levels,” Kan added. Refinancing comprised 26.8% of the total applications last week compared to 27.6% the previous week, according to the MBA data. 

Mortgage rates have increased ahead of the Federal Reserve’s meeting, which is scheduled for May 2-3. In its last meeting in March, the Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points, climbing from 4.75% to 5%, its ninth consecutive rate hike. 

The MBA data shows the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) at 6.55% last week, compared to 6.43% the previous week. Rates for jumbo loans (greater than $726,200) rose to 6.40% from 6.28%. 

“Although incoming data points to a slowdown in the U.S. economy, markets continue to expect that the Fed will raise short-term rates at its next meeting, which have pushed Treasury yields somewhat higher,” Kan said. “As a result of the higher yields, mortgage rates increased for the second straight week to their highest level in over a month.”  

Experts do see some signs of improvement in housing supply, but it’s still too early to celebrate.

Altos Research data shows that inventory rose from 405,468 to 414,010 from April 14 to 21. The bottom for 2022 was 240,194. Meanwhile, the peak for 2023 so far is 472,680. 

According to Logan Mohtashami, lead analyst at HousingWire, active and new listings fell two weeks ago based on Altos Research data. The Easter holiday may have had an impact, he said. 

“If that is the case, then this week’s gain in active inventory and new listings needs to be taken with a grain of salt until we get next week’s data,” Mohtashami wrote.