The bad news continues to mount for the housing market.
In the latest development, mortgage applications fell 5% seasonally-adjusted in the week ended April 15 from a week earlier, according to the Mortgage Bankers Association.
Refinancing applications dropped 8% from the previous week and were 68% percent lower than a year ago. Seasonally-adjusted purchase applications slid 3% from a week earlier, and unadjusted purchases were 14% lower than a year ago.
“Ongoing concerns about rapid inflation and tighter U.S. monetary policy continued to push Treasury yields higher, driving mortgage rates to their highest level in over a decade,” said MBA economist Joel Kan.
“Rates increased across the board for all loan types, with the 30-year fixed rate hitting 5.2%, the highest level since 2010.”
Impact on Mortgage Applications
Those higher rates put a damper on mortgage applications. Rising rates have “shut most borrowers out of rate/term refinances,” Kan said.
“In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase demand as well. Home purchase activity has been volatile in recent weeks and has yet to see the typical pick up for this time of the year.”
Interestingly enough, adjustable-rate mortgages (ARMs) accounted for 8.5% of mortgage applications in the latest week, the highest level since 2019.
You might think that home buyers would shy away from ARMs as rates rise.
“ARM loans typically have lower [starting] rates than fixed rate mortgages, and as this spread has widened, ARM loans have become more attractive to borrowers already facing home purchase loan amounts close to record highs,” Kan said.
Unaffordable Homes
Meanwhile, with U.S. home prices soaring 19.2% in the 12 months through January, it’s clearly difficult for non-wealthy people to afford a home.
In the U.S., 27 housing markets ranked as severely unaffordable in 2021, nearly double the 14 of 2019, according to a study by the U.S. Urban Reform Institute and Canada’s Frontier Centre for Public Policy.
It defines severely unaffordable as markets where the median home price is at least 5.1 times the median income. That multiple is called the affordability rating.
California has the largest concentration of severely unaffordable markets, with four of the nation’s five highest-cost markets relative to incomes. Those cities are San Jose (with an affordability rating of 12.6), San Francisco (11.8), Los Angeles (10.7) and San Diego (10.1). Honolulu came in at 12.
