Mortgage demand drops as bank failures reach huge loan rates

Mortgage demand from homebuyers has been erratic to say the least during the usually busy spring housing market. That’s likely due to the sensitivity of today’s buyers to mortgage rates, which have been fluctuating widely from week to week but are still much higher than they were a year ago. Now, many bank failures are starting to make it more difficult for even the wealthiest of buyers.

Mortgage applications for a home purchase fell 2% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was 32% lower than in the same week a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with matching loan balances ($726,200 or less) fell to 6.50% from 6.55%, with points remaining at 0.63 (including origination fees) for loans with a 20% down payment. . The rate was 5.36% in the same week one year ago.

The average rate for megaloans (top-balance mortgages) was slightly lower at 6.37%, but that spread has been shrinking in the past few months. Jumbo loan rates were much lower than matching because banks generally keep these loans on their balance sheets, since Fannie Mae and Freddie Mac don’t buy them. Fannie and Freddie have charged higher fees since the Great Recession, so their rates are higher now.

“The huge matching spread continues to narrow, an indication of a reduced appetite for lenders for massive loans in the wake of recent turmoil in the banking sector and mounting concerns about liquidity,” Joel Kahn, MBA’s deputy chief economist, wrote in a statement. “The spread was 13 basis points last week, up from 64 basis points in November 2022.”

Home loan refinance applications increased 1% from the previous week but were 51% lower than the same week one year ago. The share of mortgage refinancing activity rose to 27.2% of total applications from 26.8% in the previous week.

Mortgage rates have been volatile at the start of this week, with concern mounting about bank failures and the much-anticipated Federal Reserve meeting on Wednesday. The Fed is expected to raise the benchmark interest rate by a quarter of a point, but the comment from Fed Chair Jerome Powell will have the biggest impact on the bond market and, in turn, mortgage rates.