(5MinNewsBreak.com) – The real estate market is getting hit hard as mortgage rates have experienced an increase for the third consecutive week, reaching the highest levels recorded since November of the previous year.
This escalation in rates has led to a notable decline in the demand for mortgage applications.
The Mortgage Bankers Association’s seasonally adjusted index reveals that there was a 2.7% decrease in mortgage application demand compared to the prior week, CNBC reports.
In more detailed terms, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (defined as loans of $766,550 or less) rose to 7.24%, ascending from 7.13%.
Additionally, the points associated with these loans increased marginally to 0.66 from 0.65, including the origination fee, for mortgages secured with a 20% down payment.
A significant dip was observed in the number of applications to refinance a home loan.
The report points out that these applications are particularly responsive to weekly fluctuations in interest rates, and recorded a 6% decline over the week, although they were still 3% higher compared to the corresponding week a year prior.
The sector of the market pertaining to applications for a mortgage to purchase a home also witnessed a downturn, with a 1% decline over the week.
This metric was notably 15% lower when compared to the same period in the previous year.
The concurrent rise in home prices along with interest rates has severely impacted the purchasing power of potential buyers, subjecting them to a dual challenge of inflated costs and increased rates.
“Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply,” commented Joel Kan, the Deputy Chief Economist at the Mortgage Bankers Association.
In scenarios where affordability is compromised, there tends to be a shift towards adjustable-rate mortgages (ARMs), which is precisely what occurred last week.
The share of applications for ARMs increased to 7.6%. These types of mortgages generally offer lower rates and can be fixed for durations of up to 10 years, though they are considered to carry higher risks.
While mortgage rates have shown a slight decrease earlier this week, there has been a scarcity of significant economic data to have a substantial influence on these rates, the report notes.
This situation is anticipated to change with the upcoming release of the crucial monthly employment report next week, which is expected to provide more concrete insights into the economic landscape and potentially affect mortgage rates further.
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