Purchase Activity Craters as Mortgage Rates Near 8%

The mortgage market is continuing its spiral, sinking applications as rates approach the 8 percent threshold.

Mortgage applications decreased 6 percent in the week ending on Sept. 29, from the previous week, according to the Mortgage Bankers Association’s latest survey.

Refinancings fell 7 percent week-to-week and 11 percent year-over-year, while both the seasonally adjusted and unadjusted purchase index declined 6 percent from a week earlier and 22 percent from last year.

Purchases have declined as mortgage rates climbed in the last year, but the final week of September showed how far they have fallen. Applications were at their lowest level since 1995, demonstrating how many buyers have been cast to the side by rising rates.

The gulf between rates and purchase applications is poised to keep growing. For the last full week of September, the average 30-year fixed-rate mortgage was 7.53 percent. By the end of last week, however, Mortgage News Daily’s index showed a 7.81 percent rate.

The Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders wrote to Federal Reserve Chairman Jerome Powell on Monday urging the Fed to say it is not contemplating further rate hikes and won’t sell its mortgage-backed securities until the housing finance market stabilizes.

Federal Reserve policy has affected mortgage rates in a major way in the past 18 months. The Fed didn’t hike rates last time it had the opportunity, but didn’t rule out more increases either. A stronger-than-expected jobs report released at the end of last week may make the possibility of lower interest rates and — mortgage rates — even less likely in the short-term future.

Clarity regarding the Fed’s future monetary policy could cool the massive rate swings, but perhaps not in time to avoid crossing the 8 percent threshold, roughly triple the mortgage rates seen early into the pandemic. Mortgage rates haven’t crossed that threshold since August 2000, according to Insider.

The Fed wants to shrink its balance sheet and banks are being more cautious buying government-backed bonds that pool home loans into investments, the Wall Street Journal reported. Bank of America figures show in the first half of the year, the two forces reduced respective portfolios of agency mortgage-backed securities by a collective $207 billion.

The gap between 30-year fixed rates on new conforming mortgages and 10-year Treasury yields was nearly 3 percentage points at the end of September, according to Intercontinental Exchange data, well above the pre-pandemic average of under 2 percentage points.