Mortgage Rates Climb Over 7% Again As Refinances Hit 22-Year Low

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On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 7.08% as of Nov. 10, up from last week when it averaged 6.95%. The 15-year fixed-rate mortgage averaged 6.38%, up from last week when it averaged 6.29%. And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 6.06%, up from last week when it averaged 5.95%.

“As the housing market adjusts to rapidly tightening monetary policy, mortgage rates again surpassed seven percent,” said Sam Khater, Freddie Mac’s chief economist. “The housing market is the most interest-rate sensitive segment of the economy, and the impact rates have on homebuyers continues to evolve. Home sales have declined significantly and, as we approach year-end, they are not expected to improve.”

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While mortgage rates were on the rise again, mortgage applications fell for the seventh straight week. The Mortgage Bankers Association’s (MBA) Market Composite Index fell by 0.1% on a seasonally adjusted basis – and while the Refinance Index fell by 4% from the previous week, the Purchase Index had its first uptick in six weeks with a 1% increase.

“Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation,” said Joel Kan, MBA vice president and deputy chief economist. “The 30-year fixed rate remained above 7% for the third consecutive week, with increases for most loan types.

Purchase applications increased for the first time after six weeks of declines but remained close to 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty. Refinances continued to fall, with the index hitting its lowest level since August 2000.”

Also in the mortgage world, J.D. Power released its new U.S. Mortgage Origination Satisfaction Study, with Rocket Mortgage (NYSE:RKT) ranking highest in mortgage origination satisfaction, with a score of 750 out of 1,000. Chase (NYSE:JPM) ranked second at 736 while Citi (NYSE:C) and Fairway Independent tied for third at 733.

However, the study warned that few lenders were “finding the right formula to build long-term trust and loyalty that truly stands out from the competition.”

“There is no denying the effects of rising interest rates on mortgage demand, and this is precisely the time when lenders need to differentiate themselves as trusted advisors who can guide customers through the lending process and offer valuable counsel along the way,” said Craig Martin, executive managing director and global head of wealth and lending intelligence at J.D. Power.

“That means ramping up communication — keeping customers informed throughout the lending process and ensuring consistent and effective communications through all channels. Unfortunately, less than one in three customers say their lenders were able to deliver that optimal experience.”

On The Homebuying Front

Single-family existing home sales prices grew year-over-year in 181 of the nation’s 185 major metro areas during the third quarter, according to new data from the National Association of Realtors (NAR). However, less than half of metro markets (46%) posted double-digit annual price appreciation, compared to 80% in the second quarter.

The national median single-family existing-home price climbed 8.6% from a year ago to $398,500, but year-over-year price appreciation decelerated when compared to the previous quarter’s 14.2%.

“Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising,” said NAR Chief Economist Lawrence Yun. “The median income needed to buy a typical home has risen to $88,300 – that’s almost $40,000 more than it was prior to the start of the pandemic, back in 2019.”

The monthly mortgage payment on a typical existing single-family home with a 20% down payment during the third quarter was $1,840 – a 50% increase from one year ago. Families typically spent 25% of their income on mortgage payments, up from 17.2% one year ago.

“A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring the 30-year mortgage rates down to around 6%,” Yun said. “The usual spread between the 10-year Treasury yield and the 30-year mortgage rate is between 150 to 200 basis points, rather than the current spread of 300 basis points.”

The brokerage Redfin (NASDAQ:RDFN) reported that 29% single-family homes for sale in the third quarter were new construction, which marked the highest share of any third quarter on record.

However, the glut of inventory could force builders to ease up on construction in 2023, according to Redfin Deputy Chief Economist Taylor Marr.

“Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold,” Marr said. “Builders will also shift more toward multifamily units, for which there is still relatively high demand because rents remain high.”