Decline in Home-Buying Demand

The rise in mortgage rates has had a dampening effect on overall home-buying demand. According to the Mortgage Bankers Association (MBA), the market composite index, which measures mortgage application volume, fell by 1% to 165.2 for the week ending October 20 compared to the previous week. This decline in demand highlights how high rates are keeping a lid on home-buying and refinancing activity.

Surge in Adjustable-Rate Mortgages

In light of the escalating rates, more home buyers are turning to adjustable-rate mortgages (ARMs). The demand for ARMs has reached its highest level since November 2022, signaling a shift in preferences within the mortgage market. While this increased preference for ARMs may highlight a willingness to embrace flexible rates, it also reflects the impact of rising fixed rates on buyer behavior.

Key Details

  • The purchase index, which measures mortgage applications for home purchases, fell by 2.2% from the previous week due to high rates.
  • Refinancing activity, on the other hand, experienced a slight uptick with a 1.8% increase.
  • For homes with a sale price of $726,200 or less, the average contract rate for a 30-year mortgage rose to 7.9% for the week ending October 20, up from 7.7% the previous week.
  • Jumbo loans, pertaining to homes sold for over $726,200, saw an increase in rates as well. The 30-year mortgage rate for these homes rose to 7.78% from 7.56% the prior week.

In conclusion, it is evident that rising mortgage rates are having a significant impact on the housing market. While home-buying demand has declined, the preference for adjustable-rate mortgages has surged. The effects of these rising rates are felt across various segments of the market, emphasizing the need for careful monitoring and analysis within the mortgage industry.

U.S. Mortgage Rates on the Rise

The average rate for a 30-year mortgage backed by the Federal Housing Administration has increased to 7.52%, up from 7.36% last week. Similarly, the 15-year mortgage rate rose to 7.08% from 6.98%. Additionally, the rate for adjustable-rate mortgages has climbed to 6.99% from 6.52%, reaching its highest level since November.

Housing Market Outlook

As winter approaches, the U.S. housing market seems to be experiencing a freeze due to an imbalance between supply and demand. The rising interest rates are causing prospective home buyers to refrain from making purchases, as borrowing costs skyrocket. The high rates are also discouraging homeowners from selling their properties, especially if they plan to purchase another home with a similarly high rate. Consequently, this is leading to a decline in the supply of homes available for sale. This dynamic is expected to persist until either rates decrease enough to encourage homeowners to sell or until buyers and sellers accept higher rates as the new norm.

Insights from the MBA

According to Joel Kan, the deputy chief economist and vice president at the MBA, the continued increase in mortgage rates over seven consecutive weeks, amounting to a total surge of 69 basis points, is severely impacting the market. Kan states, "These higher mortgage rates are keeping prospective homebuyers out of the market and continue to suppress refinance activity."

Market Reaction

In early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) surpassed 4.8%.

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