December 6, 2023

Homes in Centerville, Maryland, USA, Tuesday, April 4, 2023.

Nathan Howard | Bloomberg | Getty Images

During the usually busy spring housing market, mortgage demand from homebuyers has been shaky to say the least. This may be because buyers today are very sensitive to mortgage rates, which fluctuate wildly from week to week, but are still much higher than a year ago. Now, the collapse of several banks is starting to make it harder for wealthier buyers as well.

Mortgage applications to buy a home fell 2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was down 32% from the same week a year ago.

The average contract rate for 30-year fixed-rate mortgages with qualifying loan balances ($726,200 or less) fell from 6.55 percent to 6.50 percent, and the point remained at 0.63 (including the origination fee) for loans with a 20 percent down payment. The same week a year ago the rate was 5.36%.

The average rate for jumbo loans (mortgages with high balances) was slightly lower at 6.37%, but that spread has been narrowing over the past few months. Interest rates on bulk loans are much lower than those on qualifying loans because banks typically keep these loans on their balance sheets, and Fannie and Freddie don’t buy them. Since the Great Depression, Fannie and Freddie have imposed higher fees, so they now have higher rates.

“Large loan spreads continue to narrow, suggesting that lenders are more likely to continue to trade after the recent turmoil in the banking sector and heightened concerns about liquidity,” MBA deputy chief economist Joel Kan wrote in a release. Appetite for larger loans has declined.” “Spread spread was 13 basis points last week, compared to 64 basis points in November 2022.”

Home loan refinance applications were up 1% from the previous week, but down 51% from the same week a year ago. The refinance share of mortgage activity rose to 27.2% of total applications from 26.8% the previous week.

Mortgage rates got off to a volatile start to the week amid more fears of bank failures and Wednesday’s highly anticipated Federal Reserve meeting. The Fed is expected to raise its benchmark interest rate by 25 basis points, but comments from Fed Chairman Jerome Powell will have the biggest impact on the bond market and, by extension, mortgage rates.