Mortgage outlook lowered as rates soar and refinancing wanes

A sign advertising home mortgage services at a branch of Bank of America in Manhattan Beach, California.

Patrick T. Fallon | Bloomberg | Getty Images

Mortgage bankers nationwide are lowering their expectations for the year as rapidly rising rates make buying a home even more expensive.

The Mortgage Bankers Association now calls for aggregate mortgage lending, which includes refinance lending, to total $2.58 trillion in 2022, down 35.5% from 2021. The previous forecast was $2.58 trillion in 2022. $610 billion.

The forecast from the MBA, which represents more than 2,000 companies in the sector, reflects the jarring realities of the US economy. The supply in the housing market is tight and prices are high. Americans are grappling with the highest inflation in four decades, while the Federal Reserve is aggressively raising interest rates to control it.

With rates soaring, demand for refinancing has fallen sharply lately. Home loan refinance applications fell 5% in the most recent week, seasonally adjusted, and were 62% lower than they were a year ago, according to the MBA. For the full year, the group expects a 64% drop in refinancing. The refinancing share of mortgage activity fell to 37.1% of total applications last week, from 38.8% the previous week.

Purchase origins are expected to rise further to a record $1.72 trillion this year, but the previous forecast was $1.77 trillion.

“While existing sales volume will be slightly lower than last year, continued growth in new home sales and rapidly rising home prices are expected to result in weaker, but solid, 4% annual growth in the original volume of purchases,” said MBA Chief Economist Michael Fratantoni.

The average contractual interest rate for 30-year fixed rate mortgages with a 20% down payment and conforming loan balances of $647,200 or less has increased from 4.90% to 5.13%, depending on the MBA. The rate stood at 3.27% the same week a year ago.

Points increased from 0.53 to 0.63 including setup fee.

“Mortgage rates for all types of loans continued to rise, with the 30-year fixed rate crossing the 5% mark – the highest since November 2018. As a result, refinancing activity declined at the slowest weekly pace since 2019,” said Joel Kan, an MBA economist.

Mortgage applications for the purchase of a home rose 1% for the week, but were 6% lower than in the same week a year ago. More and more potential buyers are now turning to variable rate mortgages, which carry lower interest rates. Their share of applications last week was 7.4%, the highest level since June 2019.

“A promising sign of strong buying demand amid challenging affordability, both conventional and government buying requests have increased,” Kan said.

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