Mortgage Demand Jumps Nearly 28% as Interest Rates Drop to Lowest Point in Months

The Mortgage Bankers Association’s reported a roughly 28% increase in mortgage application volume from the prior week. In addition, mortgage rates have been at their lowest since September. Since the end of the holidays, consumers have returned to the market aggressively, increasing demand for homes dramatically.

The most significant shift in financing has been the demand for refinances, which increased 34% from the previous week but was still 81% below the same period a year ago. Refinance applications comprised 31.2% of all mortgage activity, up from 30.7% the week before. Mortgage applications for home purchases increased 25% week over week while declining 35% from the same week a year earlier.

Home Price Growth Continues to Slow in the Fourth Quarter

According to the most recent Home Price Index (HPI) report from Fannie Mae, home price growth in the United States continued to decline towards the end of 2022, dropping to a non-seasonally adjusted annual pace of 9.2% in the fourth quarter.

The fourth quarter’s growth rate was slower than the third quarter’s recently revised yearly rate of 13.1% growth. Seasonally adjusted house price growth from the 3^rd and 4^th quarters was 0.2%. Prices dropped by 1% in the fourth quarter after accounting for seasonality.

Rising rates have also exacerbated what Mark Palim, Fannie Mae’s vice president and deputy chief economist, called “the lock-in effect.” This is when homeowners decide to remain in their current residences since there is no compelling reason to forgo their current low mortgage rate to purchase a home at higher interest rates that exist currently. Because of the lock-in effect, inventory suffers due to the growing shortage of available properties for sale.

“We believe that a key factor that will impact home prices in 2023 is how the tension between a reduced supply of homes available for sale and lower mortgage demand is resolved,” Palim said.

A “Less Crazy” Housing Market in 2023 Predicted by Real Estate CEOs, Economists & Experts 

The real estate experts from companies like the Mortgage Bankers Association, Zillow, Taylor Morrison, and others who participated in Point’s 2023 Real Estate Expert Survey concur that the real estate market will likely be less turbulent in 2023. However, any progress will be gradual.

Point questioned experts about the future of mortgage rates, the state of existing-home sales, and the advice they would give to both buyers and sellers, and here are the key findings:

• About three-quarters of the respondents expect the average 30-year fixed mortgage rate to stay below 7% in June 2023. Every respondent believes rates will be at or below 7% by December.
• Nearly all the experts believe existing-home sales will fall in 2023 compared to 2022, but about one-third think they will decrease by 9% or less.
• Experts expect home values to drop by a median of 5% during the year.
• Nearly half of the experts pointed to the Fed’s decisions on interest rates as the factor with the most significant impact on the housing market.
• HELOC volume is likely to increase in 2023, said about three-quarters of respondents.

Source:
Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.