Housing market slows as Fed eyes interest rate increase sooner

by ian

Ian Patrick, FISM News


Inflation continues to rear its ugly head as data on falling mortgage applications combined with an indication from the Federal Reserve that it plans to increase interest rates brings caution and concern.

The Mortgage Banker’s Association (MBA) seasonally adjusted index revealed that applications for mortgages fell 6% last week when compared to the week before, according to reporting from CNBC. Last week’s numbers were also 41% lower than the same week one year ago.

“The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.90% from 4.80% . . . for loans with a 20% down payment,” CNBC’s Diani Olick writes. One year ago, this rate was only 3.36%.

The same trend applies to refinancing applications for home loans. Last week they fell 10% compared to the week before, and fell 62% when compared to the same week last year.

Joel Kan, an MBA economist, said of the amount of mortgage applications: “As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019.”

Applications for mortgages with the intention to purchase a home dropped 3% last week and showed a 9% decline from the same week last year.

Speaking to the situation, Kan said, “The elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges.”

FISM News previously reported on how increased costs have affected first-time buyers, writing “higher mortgage rates and rising homes prices amid a prolonged housing shortage will reduce affordability” for the demographic. Soaring home prices also have some experts worried that a housing crash could be on its way soon.

In correlation with this data, minutes from a Federal Reserve meeting on Wednesday revealed that the central bank may be looking to increase interest rates at a quicker pace than previously expected.

According to reporting from CNN Business on the Fed minutes, officials are showing concern over the continued inflation and the possible future impacts from Russia’s invasion of Ukraine. This could lead to a greater percentage point increase for interest rates come this May than what was announced previously, as many in the meeting expressed a desire to have raised rates by 50 percentage points in March rather than the already instituted 25 points.

March’s 25 basis points increase was the first interest rate increase since 2018.