Mortgage Purchase Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage purchase applications.

• Rising rates continue to have an impact on home purchase applications. The Mortgage Bankers Association released its weekly survey of mortgage applications this morning. The purchase component eased 2.7% this week relative to last and has fallen 16.8% since the first week in May on a seasonally adjusted basis. Rates reversed course last week and turned upward after easing in the prior week. The average rate for a 30-year fixed rate mortgage was 4.57% last week according to Freddie Mac.
• While the average rate has been on the rise, the Federal Housing Finance Agency is considering reducing the size of the mortgages that can be backed by Fannie Mae and Freddie Mac. Currently, the GSEs can support loans up to $417,000 in most markets and up to $625,500 in higher cost markets, while loans above this are supported by the private “jumbo” market made up of banks and private MBS securitizers. Rates on jumbo loans have eased to party or slightly better than conforming loans in recent months as banks have started taking more loans into portfolio to compensate for weak commercial and refinance business. However, these loans are very high quality with large down payments and high FICO scores. The concern then is that if the loan limits decline, the private sector may still not be ready to pick up the non-pristine lending activity in the high cost portion of the market, cutting off access to credit for this portion of the market.
• Mortgage rates have had an impact on mortgage activity in recent weeks. Some borrowers will be able to adjust to higher rates either through larger down payments or purchasing lower priced homes. However, the higher rates may curb some home purchases as affordability wanes. A reduction in loan limits would only amplify this effect, particularly in the high cost markets that they currently support.