With interest rates rising to cool off inflation, the COVID-19 era of high demand for mortgage refinancing is tapering off.
Mortgage refinance demand fell 14% from the previous week and is down 54% from the same week a year ago, according to the Mortgage Bankers Association.
Also, the refinance share of mortgage activity fell to 44.8% of total applications after being nearly 50% the previous week.
"The number of high-quality refi candidates was already down more than 75% through last week – these latest jumps will likely cut that population even further," Black Knight VP Andy Walden told CNBC. "But, while we are now seeing declines in overall lending activity, cash-out lock volumes continue to hold stronger than rate/term refis against rising rates.
"This will be an important market segment for lenders, particularly given the record $10 trillion in tappable equity available being padded even further by the still red-hot housing market."
Total mortgage applications fell 8.1% in the past week as the average interest rate for a 30-year fixed-rate mortgage (of $647,200 or less) increased from 4.50% from 4.27%.
Home purchase mortgage applications fell 2% this past week and are 12% lower than the same week a year ago, according to the report.
"The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve," MBA chief economist Mike Fratantoni told CNBC. "MBA's new March forecast expects mortgage rates to continue to trend higher through the course of 2022.
"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 added.
Sales of new U.S. single-family homes unexpectedly fell in February amid rising mortgage rates and higher house prices, which are squeezing out some first-time buyers from the market.
Despite the second straight monthly decline reported by the Commerce Department on Wednesday, sales remained above their pre-pandemic level. Economists saw reduced affordability curbing activity in the near-term, but expected the new housing market to plod along this year given pent-up demand, a record low inventory of previously owned homes and strong wage gains.
"With interest rates climbing further because of the negative supply shock emanating from the Russian invasion of Ukraine, home sales are likely to trend lower in coming months," said David Berson, chief economist at Nationwide in Columbus, Ohio. "But unless mortgage rates spike or the economy stalls or worse, the falloff in new home sales should be modest."
New home sales decreased 2% to a seasonally adjusted annual rate of 772,000 units last month. January's sales pace was revised down to 788,000 units from the previously reported 801,000 units. Sales surged 59.3% in the Northeast and increased 6.3% in the Midwest. But they fell 1.7% in the densely populated South and tumbled 13.0% in the West.
New homes are a leading indicator for the housing market as they are counted at the signing of a contract.
Economists polled by Reuters had forecast new home sales, which account for 11.4% of U.S. home sales, would rebound to a rate of 810,000 units. Sales declined 6.2% on a year-on-year basis in February. They peaked at a rate of 993,000 units in January 2021, which was the highest since the end of 2006.
"We may be approaching a pivot point when higher home costs and higher mortgage rates cool both sales and price increases, but given the supply-and-demand imbalance, we may not hit that point this year," said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.
There were 407,000 new homes on the market, the highest since August 2008 and up from 398,000 units in January. Houses under construction made up 65% of the inventory, with homes yet to be built accounting for about 26%.
The backlog of homes approved for construction but yet to be started is at an all-time high as builders struggle with shortages and higher prices for inputs like lumber for framing, as well as cabinets, garage doors, countertops and appliances.
At February's sales pace it would take 6.3 months to clear the supply of houses on the market, up from 6.1 months in January.
Material from Reuters was used in this report.
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