For the second week in a row, we’re seeing a decline in mortgage rates, yet they’re still anchored above the 7% mark. As of this week, Freddie Mac’s Primary Mortgage Market Survey (PMMS) places the 30-year fixed-rate mortgage (FRM) at an average of 7.12%. Rewind the clock a year, which was a more manageable 5.89%.
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The 30-year FRM has been above 7% for the last four weeks, says Freddie Mac’s Chief Economist, Sam Khater. On one hand, the economy is showing signs of resilience, which is good news for consumers. However, due to firmer economic data and lingering inflation, mortgage rates are elevated. This poses a significant challenge to potential home buyers navigating an affordability maze.
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Freddie Mac didn’t just stop at the 30-year FRM; they also gave us an insight into the 15-year rates. For the week ending September 7, the 15-year FRM averaged 6.52%, quite a leap from 5.16% a year ago. According to the Mortgage Bankers Association (MBA), this high interest rate environment has dampened the enthusiasm for mortgage applications. Their Weekly Mortgage Applications Survey shows a 2.9% decrease for the week ending September 1.
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Notably, the refinance index dipped by 5% week-over-week and is an alarming 30% lower than the same week in the previous year. Moreover, the unadjusted purchase index saw a similar decline of 5% week-over-week and an even steeper drop of 28% compared to last year.
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“Mortgage applications have reached their lowest point since December of 1996. Both purchase and refinance applications are shrinking. The culprit? A combination of high mortgage rates and a scant housing inventory,” comments Joel Kan, MBA’s Vice President and Deputy Chief Economist.
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As for the types of mortgage activity, refinances are down to 30% of total applications. Adjustable-rate mortgages (ARMs) also decreased, making up only 6.7% of the total. However, Federal Housing Administration (FHA) loans saw a slight uptick, constituting 13.7% of total applications. Conversely, Veterans Affairs (VA) loans shrunk to 11.3%.
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Despite the overall health of the economy and mixed signals on job market trends, rates are over an entire percentage point higher than a year ago. “The refinance index has hit its lowest since January of this year, primarily due to a 6% drop in conventional refinances,” adds Kan.
As we sail through these choppy waters, prospective homebuyers and current homeowners alike must keep a keen eye on market trends and be prepared for the unexpected.
