The group’s Weekly Mortgage Applications Survey — which covers 75% of American retail residential mortgage applications — discovered that rates increased for all loan types, including a jump to 5.65% for the benchmark 30-year fixed rate.
“Mortgage rates followed Treasury yields up in response to higher-than-expected inflation and anticipation that the Federal Reserve will need to raise rates at a faster pace,” MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said regarding the report.
Mortgage rates were below 3% for most of the past two years amid aggressive monetary stimulus from the Federal Reserve. Since the beginning of the year, rates surged from just over 3% to well over 5% earlier this month, according to data from government-backed mortgage company Freddie Mac.
The Consumer Price Index (CPI) increased 8.6% year-over-year as of May, while the Producer Price Index (PPI) — which monitors inflation for wholesalers — increased 10.8% over the same period, according to the U.S. Bureau of Labor Statistics. As Kan mentioned, the Federal Reserve is currently weighing a 0.75% interest rate hike, after increasing rates by 0.5% last month and 0.25% three months ago.
The MBA survey also found that refinancing activity plummeted 76% from one year ago. Indeed, real estate firms Redfin and Compass announced respective 8% and 10% cuts to their workforces as mortgage activity declines and home sales slow. Indeed, purchase applications declined more than 15% compared to last year as “ongoing inventory shortages and affordability challenges have cooled demand, coinciding with the rapid jump in mortgage rates,” according to Kan.
“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006,” Freddie Mac Deputy Chief Economist Len Kiefer argued earlier this week. “Mortgage applications are pointing to a large decline over summer.”
Even for luxury homes — defined as the top 5% of the market — sales fell 18% from February to April 2022 compared to the same period last year, according to a report from Redfin obtained by The Wall Street Journal. A plummeting stock market is likely worsening hesitation among luxury buyers. Other factors — including the supply chain bottlenecks and labor market shortages that are applying upward pressure to overall inflation rates — continue to challenge the broader housing market.
There are also mismatches between supply and demand that continue to plague the sector. Construction of new homes has already been slowing over the past several decades — resulting in 6 million too few properties on the market. As The Daily Wire’s Cabot Phillips explained earlier this year on “Morning Wire,” many experts believe that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise.”
The problem worsened during COVID-19 and the lockdown-induced recession. “New construction projects were halted across the board, and that means the number of houses now up for sale is far lower than usual,” Phillips explained. “And unfortunately on that front, it will likely take years for new home construction to once again meet demand.”