December 6, 2023

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

Nathan Howard | Bloomberg | Getty Images

Homebuyers today appear to be increasingly sensitive to weekly changes in mortgage rates. While prices have eased, affordability remains a major hurdle, especially as more first-time buyers enter the market.

The average contract rate for 30-year fixed-rate mortgages with qualifying loan balances ($726,200 or less) rose to 6.43% last week from 6.30% the week before, and points rose to 0.63 from 0.55 (including the origination fee) with a 20% down payment loan.

As a result, mortgage applications to buy a home fell 10% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Buyer demand was 36% lower than the same week a year ago, when the average rate on a 30-year fixed-rate mortgage was 5.20%.

“Affordability challenges persist, with limited for-sale inventory in many markets across the country, so buyers remain hesitant when they act,” Joel Kan, MBA’s deputy chief economist, wrote in a release. Be selective.” “A 10% drop in FHA homebuyer applications and an increase in the average homebuyer loan size to its highest level in a month are other signs that first-time homebuyers are holding back.”

But wealthier buyers may also face new difficulties when it comes to credit. Banks have been offering better rates on large loans, but the spread between large and qualifying loans is much tighter now than it was last year. This is related to recent regional bank failures that have rippled across the industry.

“We expect this narrowing trend to continue as banks reduce their willingness to hold large loans,” Kan said.

Applications to refinance home loans fell 6% from the previous week and 56% from a year ago. The refinance share of mortgage activity increased to 27.6% of total applications from 27.0% the previous week.

Mortgage rates started the week with a sharp rise, according to another rate survey from Mortgage News Daily. Still, rates have fluctuated between 6% and 7% for months. Potential homebuyers may be used to higher interest rates by now, but prices haven’t adjusted enough to make them affordable.