Mortgage Requests Fall, Borrowing Costs at 7-Year Highs
US mortgage applications declined last week as home borrowing costs climbed to their highest levels in over 7 years, propelled by a spike in bond yields during last week’s market selloff, the Mortgage Bankers Association said Wednesday.
The Washington-based industry group said its seasonally adjusted gauge on consumer requests for a loan to buy a home and to refinance 1 decreased 1.7% to 3.467 in the week ended 5 October marking its 1st decliner in 4 weeks.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since February 2011, 5.05%, from 4.96%.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since April 2010, 4.44%, from 4.39%.
The last time the benchmark 30-year fixed mortgage rate hit 5% was in April 2011, according to Bankrate.com’s historical rate data. Back then the Fed had cut the fed funds rate to .25% to stimulate the economy and mortgage rates were falling.
Now it’s the other way around, with rates on the rise.
The Fed has hiked Key interest rates 3X in Y 2018, and is expected to continue the trend in 2019. However, mortgage rates are unlikely to climb beyond 5.5 % in the next year, says the chief economist with the Mortgage Bankers Association.
“The primary reason is that longer-run growth and inflation prospects, both nationally and globally, are just not consistent with much higher rates,” he said. “And global investors are baking those expectations into longer-run rates, including mortgage rates.”
Some industry experts don’t think housing demand will dry up once rates hit 5%. In the grand scheme of things, mortgage rates (an important factor) are not the main roadblock for buyers,
The decision to buy depends on several factors: household income, demographics, home prices and mortgage rates, usually in that order of importance.
“I expect that home sales growth will pick up again over the course of the next year even with somewhat higher mortgage rates,” he said, “but the pace of home price growth will likely slow. I think this is a welcome change, and in line with our forecast.”