Housing Beat: Mortgage Rates Soar, Mortgage Applications Sink

This week's housing and mortgage industry data is something of a seesaw ride, with mortgage rates, millennial homebuying and the mortgage delinquency rate rising while mortgage applications and a major builder's output did not. 

Rates And Applications: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 4.42% for the week ending March 24, up from last week’s 4.16%. The 15-year fixed-rate mortgage averaged 3.63%, up from last week’s 3.39%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.36%, higher than the 3.19% recorded one week ago.

“Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power,” said Sam Khater, Freddie Mac’s chief economist.

“In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market.”

While mortgage rates were on the rise, mortgage loan applications went in the opposite direction. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of application volume, was down 8.1% from one week earlier. The Purchase Index dipped by 2% over the same period while the Refinance Index tumbled 14% and was also 54% lower than the same week one year ago.

Mike Fratantoni, MBA’s senior vice president and chief economist, noted there was a larger drop in purchase loan volume involving the mortgage programs run by the Federal Housing Administration and the Department of Veterans Affairs.

“First-time homebuyers, who rely on these government programs, are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” he said. “Repeat homebuyers, who are more likely to use conventional loans, benefit from the gains in home equity realized on a sale which can be used to fuel their next purchase, even with rates moving higher.”

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Younger Buyers: On the purchasing front, the National Association of Realtors (NAR) reported that millennials account for 43% of homebuyers, up from 37% one year ago.

“Some young adults have used the pandemic to their financial advantage by paying down debt and cutting the cost of rent by moving in with family,” said Jessica Lautz, NAR's vice president of demographics and behavioral insights. "They are now jumping headfirst into homeownership."

While millennials are the largest age demographic seeking new residences, Generation X bought the most expensive homes at a median price of $320,000 — although they had the advantage of the highest median household income among age demographics at $125,000.

Less New Homes, More New Woes: On the home building front, KB Home KBH CEO Jeffrey Mezger observed during an earnings call on Wednesday that while the overall housing market’s conditions were “healthy, driven by a low supply of available inventory and favorable demographics, along with steady employment and wage growth,” his company’s ability to create new properties for prospective buyers has been stymied by ongoing economic pressures.

“While we grew our revenues 23%, as the quarter progressed, supply chain issues intensified, and an already constrained construction labor force was further stressed, which extended our build times and delayed completions and planned deliveries,” he said. “We will continue to work on addressing issues as they arise to navigate these challenges.”

And not everyone who buys a home ends up in a happily-ever-after scenario. New data from Black Knight, Inc. BKI found the total U.S. mortgage delinquency rate in February was 3.36%, up 1.76% from January but down 44% from February 2021.

Last month brought 25,000 total foreclosure starts, down 24% from the previous month but 541% higher than one year earlier. Mississippi had the highest percentage of non-current mortgages at 6.96%, while Idaho had the lowest at 1.98%.

Photo: Paolo Trabattoni/Pixabay.