Mortgage Applications Slide As Loans Stay Pricey – Forbes Advisor

Stubbornly high interest rates continue to push down the number of mortgage applications in the U.S. Demand for home loans has fallen for a fourth straight week, according to the latest survey from the Mortgage Bankers Association.

For the week ending June 2, mortgage applications fell 1.4% from the previous week’s count, the MBA reported on Wednesday, June 7. Refinance applications declined 1% for the week.

Mortgage Applications Plummet From 2022 Levels

Year over year, the changes are dramatic. The MBA reports that overall applications sank by 31.8% from early June 2022 levels, with mortgage refinancing applications falling 42%.

Joel Kan, vice president and deputy chief economist at the MBA, says multiple factors are causing the decreases.

“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers,” Kan noted in a news release.

Mortgage Rates Dip Slightly

The MBA reported that the average interest rate for a 30-year, fixed-rate mortgage dipped to 6.81% in the week ending June 2. That was down from the previous week’s average of 6.91% but still the second highest rate for the year to date.

The average rate on a 15-year fixed-rate home loandropped to 6.25% last week, from 6.41% a week earlier.

On adjustable-rate mortgages, or ARMs—with rates that are fixed for five years and can then change annually—the typical rate in the MBA’s survey fell from 5.93% to 5.39%.

Loan Demand Remains Sluggish Amid Scant Housing Inventory

The ongoing weakness in mortgage activity makes sense in light of stagnating sales of existing homes. Sales activity remained unchanged from March to April, according to the National Association of Realtors, but has plummeted 20.3% from the same time in 2022.

“Not all buying interests are being completed due to limited inventory,” Lawrence Yun, chief economist at the National Association of Realtors, said in a May 2023 news release. “Affordability challenges certainly remain and continue to hold back contract signings, but a sizable increase in housing inventory will be critical to get more Americans moving.”

Government-Backed Mortgages Gain Market Share

Demand for government-backed mortgages has seen improvement, said the MBA’s Kan.

“There was less of a decline in government purchase applications last week, which was consistent with a growing share of first-time home buyers in the market,” he said.

FHA loan applications as a share of total applications rose to 13.2% from 12.7% the previous week.
Applications for VA loans as a share of total applications inched up to 12.5% from 12.1% the previous week.

The MBA survey covers more than three-fourths of U.S. residential mortgage applications received by mortgage bankers, commercial banks and savings-and-loan associations.

Tips for Homebuyers in a High-rate Mortgage Environment

It’s tough to get around the current high-rate mortgage market but there are a few steps you can take to get the best rate possible.

First, check your credit score and credit report to see if there are any improvements you can make to your score before applying for a mortgage. The higher your credit score, the lower the interest rate you are likely to receive on a mortgage.

Then, shop mortgage lenders. It’s wise to get quotes from three to five lenders before selecting your lender. Make sure to get an estimate on all of their loan costs, like the interest rate, mortgage insurance and closing fees.

Related: Best Mortgage Lenders

Once you have selected a lender, you can talk with them about ways of lowering your mortgage costs such as buying down the rate on your mortgage or applying for a government-backed mortgage program that might offer a lower rate or low down payment.