Rising mortgage rates curbed demand for purchase loans and refinancing last week, with applications for government-backed FHA and VA mortgages taking the biggest hit, according to the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey.

During the week ending March 18, applications for purchase loans were down a seasonally adjusted 2 percent from the week before, and 12 percent from a year ago.

“Purchase application volume was down slightly for the week, with a larger drop in FHA and VA purchase volume, and a small decline in conventional purchase loans,” said MBA Chief Economist Mike Fratantoni, in a statement.

Applications for FHA-backed purchase mortgages were down 17 percent from a year ago, while VA purchase loan applications fell 6 percent year over year.

Mike Fratantoni

“First-time homebuyers, who rely on these government programs, are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” Fratantoni said. “Repeat homebuyers, who are more likely to use conventional loans, benefit from the gains in home equity realized on a sale which can be used to fuel their next purchase, even with rates moving higher.”

Demand for refinancing was down even more sharply, falling 14 percent from the previous week and 54 percent from a year ago. Requests to refinance accounted for less than half of mortgage applications (44.8 percent).

“Rates on 30-year conforming mortgages jumped by 23 basis points last week, the largest weekly increase since March 2020,” Fratantoni said. “The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer [mortgage-backed securities] purchases from the Federal Reserve. With mortgage rates now at 4.5 percent, compared to rates at or below 3 percent not that long ago, it is no surprise that refinance volume has dropped by more than 50 percent compared to this time last year.”

Adjustable-rate mortgages (ARMs) are becoming a more popular option, with ARM loan applications up 6.6 percent week over week, and 26.2 percent from a year ago. But ARM loans still only accounted for 6.4 percent of total applications.

For the week ending March 18, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 4.50 percent, up from 4.27 percent the week before. With points increasing to 0.59 from 0.54 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 4.11 percent, up from 4.02 percent the week before. With points increasing to 0.51 from 0.37 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 4.40 percent, up from 4.23 percent the week before. With points increasing to 0.73 from 0.62 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.
  • Rates for 15-year fixed-rate mortgages averaged 3.76 percent, up from 3.55 percent the week before. With points increasing to 0.55 from 0.46 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 3.39 percent, up from 3.36 percent the week before. With points increasing to 0.54 from 0.23 (including the origination fee) for 80 percent LTV loans, the effective rate also increased from last week.

Mortgage rates have continued to climb this week, following hawkish remarks Monday by Federal Reserve Chairman Jerome Powell. Powell acknowledged that the invasion of Ukraine and COVID-related supply disruptions could drive inflation beyond the Fed’s previous forecasts, and said the central bank is prepared to raise short-term interest rates by 50 basis points at a time, if necessary.

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