Homebuyers are experiencing with one of the most expensive housing markets in history, necessitating larger mortgages than ever before. Despite the fact that mortgage demand is dwindling owing to rising interest rates, the average purchase loan application size just established a new high.
According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage applications for house purchases declined 1% last week compared to the previous week. Volume was down 7% compared to the same period a year earlier.
“Purchase applications saw a modest decline over the week, with government purchase applications accounting for most of the decrease,” said Joel Kan, an MBA economist. “Prospective buyers still face elevated sales prices in addition to higher mortgage rates. The heavier mix of conventional applications again contributed to another record average loan size at $453,000.”
Home prices have been continuously rising as demand continues to surpass supply of available homes. While the increases had slowed at the end of last summer, they have now resumed their upward trend. According to the most recent CoreLogic report, prices were up 18.5 percent year over year in December.
For 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less), the average contract interest rate climbed to 4.05 percent from 3.83 percent, with points increasing to 0.45 from 0.40 (including the origination fee) for loans with a 20% down payment. In the same period a year ago, the rate was 107 basis points lower.
“Mortgage rates increased across the board last week following the recent rise in Treasury yields, which have moved higher due to unrelenting inflationary pressures and increased market expectations of more aggressive policy moves by the Federal Reserve,” added Kan.
The substantial rise in mortgage rates over the last few months has significantly reduced refinance demand. For the week, application volume was down 9%, and it was down 54% from the same period a year ago. The refinance proportion of total applications fell to 52.8 percent this week from 56.2 percent the week before. That was the lowest point since July of this year.