Economic uncertainty and stock market volatility may have helped drive 12 percent decline in purchase mortgage applications.

Homebuyer demand for purchase loans slipped last week for the first time in three weeks, even as mortgage rates backed down from 2022 highs, according to a weekly survey of lenders by the Mortgage Bankers Association.

Joel Kan

“Purchase applications fell 12 percent last week, as prospective homebuyers have been put off by the higher rates and worsening affordability conditions,” said MBA forecaster Joel Kan, in a statement. “Furthermore, general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search.”

The MBA survey showed that demand for purchase loans was down 15 percent from a year ago. Despite leveling off in recent days, mortgage rates are more than two percentage points higher than they were a year ago, hovering at levels not seen since 2009.

Rising rates have largely gutted homeowners’ appetite for refinancing, with refi applications down 10 percent week-over-week, and 76 percent from a year ago, the survey found.

Mortgage rates have eased slightly in the last week, after the Fed detailed plans to take a cautious approach in trimming more than $2.7 trillion in mortgage-backed securities the central bank has purchased in recent years to help keep rates low.

After rising more than two full percentage points this year — from 3.409 percent on Jan. 3 to a 2022 peak of 5.593 percent on May 6 — rates on 30-year fixed-rate mortgages have come down 11 basis points, to 5.479 percent as of Tuesday, according to the Optimal Blue Mortgage Market Indices (OBMMI).

Mortgage rates level off

For the week ending May 13, the MBA reported average rates for the following loan types:

For 30-year fixed-rate conforming mortgages (with loan balances of $647,200 or less), rates averaged 5.49 percent, down from 5.53 percent the week before. Although points increased to 0.74 from 0.73 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also decreased.

Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 5.03 percent, down from 5.08 percent the week before. But with points increasing to 0.61 from 0.42 (including the origination fee) for 80 percent LTV loans, the effective rate increased.

For 30-year fixed-rate FHA mortgages, rates averaged 5.32 percent, down from 5.37 percent the week before. With points decreasing to 0.71 from 0.87 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

Rates for 15-year fixed-rate mortgages, which are popular with homeowners refinancing, averaged 4.73 percent, down from 4.79 percent the week before. With points decreasing to 0.82 from 0.80 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

For 5/1 adjustable-rate mortgage (ARM) loans, rates averaged 4.42 percent, down from 4.47 percent the week before. With points unchanged at 0.73 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

The Federal Reserve has raised short-term interest rates twice this year — by 0.25 percentage points in March and by 0.50 percentage points in May — the first time it had implemented a 50-basis point rate hike in 22 years.

Fed Chairman Jerome Powell has said half-point rate hikes are likely at each of the Federal Open Market Committee‘s next two meetings in June and July, but that those decisions will depend on the latest data.

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