What happens if there’s hyperinflation? The economy is toast. What happens if the Fed raises rates too far too fast? The economy is toast. If the economy does fail, analysts will spend a lot of time determining whose fault it was. One part of the economy already signaling danger is mortgage demand. Dianna Olick reports for CNBC:
Mortgage demand appears to have nowhere to go but down, as interest rates go up.
Application volume dropped 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the observance of Labor Day. Since last year, homebuyers’ demand for mortgages has fallen by nearly a third.
Mortgage rates, which had been easing slightly through July and August, pushed higher yet again, after Federal Reserve Chairman Jerome Powell made it clear to investors that the central bank would stay tough on inflation, even if it caused consumers some pain.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.01% from 5.94%, with points decreasing to 0.76 from 0.79 (including the origination fee) for loans with a 20% down payment.
“The 30-year fixed mortgage rate hit the 6% mark for the first time since 2008 – rising to 6.01% – which is essentially double what it was a year ago,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Refinance demand fell another 4% for the week and was 83% lower than the same week one year ago. With rates above 6%, only about 452,000 borrowers could benefit from a refinance, according to Black Knight, a mortgage technology and data provider. That is the lowest number on record. These few remaining candidates could only save about $315 per month per borrower.
Mortgage applications to purchase a home squeezed out a gain of 0.2% from the previous week, but were 29% lower than the same week one year ago. There was a bump up in demand for Veterans Affairs and USDA loans, which are favored by first-time buyers because they can offer low or no down payments.
Action Line: Your Survival Guy’s got quarters in his loafers tryin’ to fight inflation. It’s not easy. Click here to subscribe to my free monthly Survive & Thrive letter, and we’ll weather this storm together.
E.J. Smith - Your Survival Guy
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