Economic data has started rolling in stronger than expected, leaving a considerable mark on mortgage rates. This recent turn of events has seen the mortgage rates climb steadily beyond 7%. The unexpected shift has come after a period of relatively modest rates, bridging the expectations of both pros and homeowners alike.
Insights from the Mortgage Bankers Association show that the average contract interest rate for a 30-year fixed-rate mortgage (with conforming loan balances) saw an increase to 7.12%. This is up from the previous week’s 6.91%, witnessing the highest level it has been since 2018.
The total mortgage application volume did not remain immune to this shift either. It fell by 2.8% compared to the week prior, according to the Market Composite Index, a measure used to calculate mortgage loan application volume. The aforementioned shift could potentially be attributed to the undeniable surge in the mortgage rates.
Significantly, refinances were impacted by the pronounced hike in mortgage rates. Refinances, which are particularly sensitive to the weekly rate changes, fell by 5% for the week and were 49% less in volume than the corresponding week the previous year.
On the other hand, the purchase applications informed a different story. Despite the hike in mortgage rates, the number of those looking to buy didn’t seem too perturbed. Applications saw a minor dip of 2% and were just 9% down from a year ago. One of the main reasons being the fact that purchase rates can often absorb the shock much better than refinances, given the stronger desire of people wanting to secure a home.
The stronger economic data, while a generally positive sign, has brought with it a domino effect. Inflation threat flashes potential rate hikes across different sectors, resulting in treasury yields soaring higher and consequentially, pushing the mortgage rates up. This considerably affects consumers’ buying power, leading to respective adjustments in consumption across varied sectors.
Federal Reserve officials have telegraphed that they are expecting multiple rate hikes this year. As the inflation and the cost of goods continue to surge, the strong economic data, though assuring, still elicits a sense of apprehension around future rate hikes that have the potential to tremendously affect homeownership cost.
It’s also worth noting the geographic differences in the surge. For instance, California witnessed a dip in activity despite being one of the busiest and largest mortgage markets. At the same time, other states like Florida and Texas saw a boost in applications.
With the current economic scenario, homeowners and potential buyers are advised to actively observe and understand the changing dynamics of the mortgage markets. Going ahead, comprehensive budget planning should take center stage, especially with the potential for further rate increases on the horizon. The market is expected to switch gears quite quickly, and it is of utmost importance to stay up-to-date and plan for unanticipated shifts accordingly. The recent mortgage rate jump serves as a testament to this evolving landscape.