The Ukraine crisis could give weak mortgage demand a big boost

Mortgage demand slowed last week as interest rates reached multi-year highs, but that is expected to change soon. Interest rates are rapidly declining, as a result of Russia’s invasion of Ukraine.

According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage application volume remained practically flat compared to the prior week. Borrowers have no reason to refinance, and homebuyers are still faced with high costs and a low supply of listings.

For 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less), the average contract interest rate rose to 4.15 percent from 4.06 percent, with points falling to 0.44 from 0.48 (including the origination fee) for loans with a 20% down payment.

Applications to refinance a house loan increased 1% last week but were still 56% fewer than the same week a year earlier. There were 92 basis points fewer debtors who could profit from a refinance a year ago because rates were 92 basis points lower. The refinance share of overall mortgage applications fell to 49.9% last week from 50.1 percent the week before.

Mortgage applications for house purchases dropped 2% this week, and were down 9% year over year. According to a new survey released Tuesday by CoreLogic, home prices are rising at the fastest rate in more than 45 years, increasing slightly over 19 percent from a year earlier in January. As a result, the average loan size jumped to $454,400, which is a new high.

Due to a substantial decline in mortgage rates this week, these dynamics are expected to shift. Investors have rushed into the bond market as a result of the conflict in Ukraine, resulting in lower yields. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury. According to Mortgage News Daily, the 30-year fixed rate has dropped 28 basis points in the last two days.

As the Federal Reserve eases its purchases and holdings of mortgage-backed assets, it was expected that rates would gradually rise this year. Because the Fed hasn’t changed its plan yet, it’s feasible that the decline in mortgage rates will be fleeting. Lower mortgage rates will continue to exert upward pressure on housing prices, especially given the extreme supply and demand imbalance.

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