Surge in Housing Appetite: Mortgage Demand Skyrockets by Nearly 10% at the Year's Onset, Defying Rising Interest Rates!

Mortgage rates experienced a slight increase for the second consecutive week, but they remain within a favorable range for consumers.

A “For Sale” outside a house in Hercules, California, US, on Tuesday, May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade

Based on the Mortgage Bankers Association's seasonally adjusted index, total mortgage application volume saw a 9.9% rise last week compared to the previous week, with an additional adjustment made for the New Year's holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) went up to 6.81% from 6.76%. Points, including the origination fee, remained unchanged at 0.61 for loans with a 20% down payment. While this rate had peaked around 8% in October and lingered in the 7% range for a significant portion of the previous year, it currently sits at a level that is still considered reasonable.

Applications for home loan refinancing surged by 19% from the prior week and marked a 30% increase compared to the same week a year ago. The 30-year fixed rate was 39 basis points higher than a year ago but 26 basis points lower than it stood four weeks prior. Despite the limited number of borrowers who stand to benefit from a refinance, given the historically low rates just two years ago, those eligible are actively returning to the market.

Applications for mortgages to facilitate home purchases saw a 6% increase for the week, although they still remained 16% lower compared to the same week last year. Buyers are grappling with constrained housing supply and soaring home prices.

Joel Kan, an economist at the Mortgage Bankers Association, noted that the uptick in both conventional and government loan applications for both purchase and refinancing is a promising start to the year. However, he suggested that this rise might be attributed to a rebound in activity following the holiday season and year-end fluctuations in interest rates. Kan highlighted the recent volatility in mortgage rates and application activity, emphasizing that overall engagement in the market remains relatively subdued.

Despite the slight increase in mortgage rates, real estate agents are reporting a renewed surge in demand from buyers who had been on the sidelines due to the elevated rate environment. Additionally, a recent report from Fannie Mae indicates that more consumers anticipate further declines in mortgage rates.

As of the current week, mortgage rates have experienced a slight increase but continue to hover in the 6% range. The upcoming release of the monthly consumer price index on Thursday is anticipated as a significant economic indicator. If the index surpasses expectations, signaling a need for further measures to curb inflation, there could be additional upward movement in mortgage rates.