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Mortgage applications fell slightly during the week ending July 21, according to the latest survey by the Mortgage Bankers Association (MBA), as home prices remained high and the downward trend in rates came to a halt.
The volume of mortgage applications nationwide dropped 1.8% compared with the previous week. “Mortgage rates were essentially flat last week but remained high, with the 30-year fixed staying at 6.87% and contributing to a pullback in mortgage applications,” said Joel Kan, MBA’s vice president and deputy chief economist in the statement.
Kan attributes the flagging volume to the combination of high rates and “persistent affordability challenges.”
In addition, purchase activity slipped 2.5% to its lowest level in more than a month, Kan said, largely due to a 10% drop in FHA loans.
He said that with fewer of these more modest loans in the mix, there was “an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May.”
During the week ending July 21, other mortgage rates changed slightly:
The MBA survey covers more than three-fourths of U.S. residential mortgage applications received by mortgage bankers, commercial banks and savings-and-loan associations.
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Housing Market Outlook With Fed’s Expected Rate Hike
The housing market is likely to remain tight with limited supply and high interest rates keeping many potential homebuyers on the sidelines. Also, the Federal Reserve Board is expected to raise the federal funds rate one quarter of one percentage point following its meeting on July 26, which means mortgage rates will probably stay elevated.
“The Fed continues to signal that it will continue to raise rates to combat inflation. However, the extension of the current high-rate environment is beginning to have lasting, damaging impacts on housing affordability, which is [at its] lowest in 40 years,” said Dr. Selma Hepp, chief economist at CoreLogic, in an emailed statement.
Higher mortgage rates have caused recent home buyers to pay hundreds of dollars more per month than those who got a mortgage just a year ago. Comparing Freddie Mac’s average 30-year fixed rate of 6.78% (as of July 20) to its 5.54% rate last year at this time, a new borrower purchasing a $400,000 house this year will pay about $257 more for their loan each month—which adds up to $92,520 over the life of a 30-year mortgage.
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The Fed has indicated it might raise the federal funds rate only one or two more times this year now that inflation has cooled.
Home Prices Rise, Again
Though many experts project slightly lower rates by year-end, those decreases have yet to materialize. Generally, high rates cause people in homes with cheaper mortgages to stay put rather than sell, because their next home purchase would be at a higher loan rate. So housing inventory has remained limited, driving up prices on the homes that are for sale.
“The imbalance between demand and supply is putting pressure on home prices again, which may result in reacceleration of housing inflation—not something the Fed is looking for,” Hepp said.
Home prices rose in May for the fourth straight month, climbing 0.7% since April, according to the latest S&P Case-Shiller index, released on July 25.
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See the full article on mortgage interest rates, or, read more Arizona real estate investing news.