Mortgage loan application volumes to either purchase or refinance a home in the U.S. dropped 8 percent on both a seasonally adjusted and absolute basis last week, with purchase activity down 12 percent, year-over-year, and applications to refinance down 54 percent, according to data from the Mortgage Bankers Association and despite a popular industry narrative that increasing mortgage rates will actually spur demand as buyers “rush to lock in at lower rates.”
At the same time, the probability of the Fed adopting at least seven, if not eight, more quarter point rate hikes by the end of the year – which should translate into even higher mortgage rates, less purchasing power for buyers and downward pressure on home values – has jumped, as we outlined yesterday.
I was just looking at the UMich consumer sentiment survey and buyer opinions of current housing prices are at an all-time low, and it’s not even close. Net opinion has swung to -70, meaning 85% of potential buyers believe prices are too high. Before 2022 this figure was never below -35, a point it reached in ’79 and ’06. I am personally surprised that purchase activity hasn’t fallen to zero.
Anybody who hasn’t refinanced has probably now missed the boat. I think we’ll see a huge drop-off in refinancing and probably lots of mortgage brokers downsizing and laying people off. Refi’s have been running about 70% of mortgage originations and I expect that to drop down to maybe 10-15% as rates rise over the next couple of years. Eventually it will start rising again as people in shorter-term loans are forced to refinance as their loans mature or rates adjust. But we’ve seen this pattern before, just not recently.
Housing supply is tight almost everywhere and I think purchases will keep happening, but as interest rates rise, it will certainly put downward pressure on pricing.
I just finished refinancing the last of several commercial mortgages and am happy to be in good shape through at least 2031. Your guess is as good as mine as to what will be happening then…
Minor correction for accuracy: I meant to say that Refi’s HAD been running about 70% of mortgage originations (last year, say.) They have been gradually falling as rates have risen and I don’t think there are going to be many folks refinancing in a year or two when rates are bumping up at 6% or more.
I only have one issue with your analysis of the current state of affairs in the world of mortgage refi, it’s the speed at which rates are rising and the speed at which layoffs will be coming.
Yesterday I posted that 30yr fixed rates had topped out at 4.75%. Just 24 hours later 30yr fixed rates topped out at 4.95%, an alarming 24 basis point increase in 24 hours.
I would expect to see “lots of mortgage brokers downsizing and laying people off” much much sooner than you have predicted. I predict the layoffs begin in April 2022 and worsen as the Fed continues it’s uphill fight against runaway inflation from years of loose money policy.
The 52 week range for 30yr fixed 2.78% ~ 4.95% let that sink in for a moment. I did all my refinancing last March. I wrote here that others should do the same because rates were not going lower. And here we are.