Mortgage applications have fallen for the fourth straight week amid elevated mortgage rates, according to a recent report by the Mortgage Bankers Association (MBA).
The volume of mortgage loan applications fell by 1.4 percent for the week ended June 2, on a seasonally adjusted basis, said an MBA press release on June 7. On an unadjusted basis, the decline was 12 percent. “Mortgage rates declined last week from a recent high, but total application activity slipped for the fourth straight week. The 30-year fixed rate dipped to 6.81 percent, 10 basis points lower than last week, but still the second highest rate of 2023,” said Joel Kan, MBA’s vice president and deputy chief economist.
He pointed out that overall applications were more than 30 percent lower compared to a year back, as borrowers “continue to grapple with the higher rate environment.”
The reduced purchasing power due to higher mortgage rates and the ongoing lack of for-sale inventory has “constrained” home purchase activity, Kan noted. For refinance borrowers, the high rates offer “very little rate incentive.” Refinance activity was down 42 percent compared to a year ago.
For the week ended May 31, the 30-year fixed-rate mortgage had an average interest rate of 6.79 percent, according to data from mortgage lender Freddie Mac. This is up from 5.09 percent a year back and 2.99 percent two years ago.
“Mortgage rates jumped this week, as a buoyant economy has prompted the market to price-in the likelihood of another Federal Reserve rate hike,” said Sam Khater, Freddie Mac’s chief economist, according to a Freddie Mac post on June 1.
“Although there has been a steady flow of purchase demand around rates in the low to mid-6 percent range, that demand is likely to weaken as rates approach 7 percent.”
Resurgence of Cash Purchases
A June 7 report from real estate brokerage Redfin shows that the share of home purchases made in cash is at the highest level in nine years. In April 2023, 33.4 percent of all U.S. home purchases were made in cash, up from 30.7 percent in April 2022.
High rates are deterring buyers who plan on taking mortgages to buy a home compared to all-cash buyers, the brokerage noted.
“A homebuyer who can afford to pay in all cash is weighing two potential paths,” said Redfin senior economist Sheharyar Bokhari. “They can use cash to pay for the home and avoid high monthly interest payments, or take out a loan and pay a high mortgage rate.”
“In that case, they could use the money that would have gone toward an all-cash purchase to invest in other assets that offer bigger returns, which could partly cancel out their high mortgage rate.”
Mortgage Rates in 2023
Industry experts are predicting mortgage rates to ease down by the end of the year, but not by much. During a recent forum in Washington D.C., Lawrence Yun, the chief economist at the National Association of Realtors (NAR), forecast rates to fall close to 6 percent by the end of 2023 and below 6 percent in 2024.
“I’ve seen a lot of highs and lows over the years, but I do think we’ll see rates land somewhere around 5.5 percent by the end of the year or into the first quarter of 2024,” Jennifer Folk, a mortgage professional with Minute Mortgage in Scottsdale, Arizona, said to The Epoch Times.
Meanwhile, Yun also criticized the Fed’s aggressive rate hikes for hurting the real estate market. While pointing out that inflation has “calmed down,” Yun said that “rents are still accelerating.”
In some places, mortgage payments now cost even more than rent. For instance, in San Jose, California, buying a home is 165 percent more expensive each month than renting it, according to a May report by Redfin.
While the median monthly rent for San Jose came to $4,176, the median monthly mortgage payment in the region was more than double, at $11,049.
