total-mortgage-applications-sink-lowest-level-since-2019-report

Total Mortgage Applications Sink to Lowest Level Since 2019: Report

According to the Mortgage Bankers Association, total mortgage applications decreased a whopping 13.1 percent last week; down to the lowest levels since December 2019. Refinancing applications also dropped significantly: they were down 15 percent over the week, and were down an incredible 56 percent year-over-year. Mortgage analysts blame rising interest rates for the pullback.

“Higher mortgage rates have quickly shut off refinance applications. Activity reduced in six of the first seven weeks of 2022,” said Joel Kan, MBA’s associate vice president of forecasting.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 4.06 percent from 4.05 percent. Loan points rose to 0.48 from 0.45 (including the origination fee) for loans with a 20 percent down payment.

Rising rates coupled with low inventory and inflated prices caused the significant drop, experts believe. Home-buying applications, which do not include re-fi figures, dropped 10 percent over the week and 6 percent year-over-year. Purchase applications have dropped for three straight weeks.

The only metric to stay relatively steady is average purchase loan size, which currently sits at all-time highs. According to the MBA, the average loan size right now across the country is $450,200. The figure peaked in early February at $453,000.

A drop in mortgage applications could signal a real estate bubble about to burst

Economists released the S&P CoreLogic Case-Shiller Home Price Index Tuesday. The index measures the value of homes on the market. According to Craig J. Lazzara, managing director at S&P DJI, 2021 registered the highest calendar-year increase in 34 years. Nationally, prices shot up 18.8% in 2021 versus a 10.4% gain in 2020.

If you’ve ever wondered what a bubble looked like before it popped, this is it. Why? Because price growth cannot keep up at these figures; and with interest rates rising and inventory low, many buyers will eventually own homes with grossly inflated values and mortgages with higher interest rates than the market has priced in.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic,” Lazzara said. “More data will be required to understand what this demand surge represents. [It could be] an acceleration of purchases that would have occurred over the next several years, or a more permanent secular change.

“In the short term, meanwhile, we should soon begin to see the impact of increasing mortgage rates on home prices.”

Humans have notoriously short memories, but try to reach way back to 2008 if you can and remember the “greatest economic crisis since the Great Depression.” That ordeal was set off by a complete collapse in the housing market due to borrowers taking on more debt than their homes were worth. And the only way for the Federal Reserve to artificially build back the economy was to tank interest rates to encourage cheap investments. Now, 14 years later, housing prices are behaving exactly like they were in 2008, but there is no failsafe anymore in the form of interest rates. Currently, rates must go up, or inflation will cripple the consumer economy. We’re in the midst of some of the most irresponsible economic planning in this nation’s history, and the dominoes are about to fall.