A house is constructed at a housing development on June 21, 2023 in Lemont, Illinois.
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Mortgage rates turned higher again last week. But the rise didn’t cut into mortgage demand, as buyers sought newly built homes.
Total mortgage application volume rose 3% compared with the previous week, in line with the Mortgage Bankers Association’s seasonally adjusted index. A further adjustment was made for the Juneteenth holiday.
Applications for a mortgage to buy a house rose 3% for the week but were 21% lower 12 months over 12 months. These applications have increased for 3 straight weeks to the best level since early May, despite still-high mortgage rates.
“Latest home sales have been driving purchase activity in recent months as buyers search for options beyond the existing-home market,” said Joel Kan, MBA’s vice chairman and deputy chief economist, in a release. “Existing-home sales continued to be held back by a scarcity of for-sale inventory as many potential sellers are holding on to their lower-rate mortgages.”
Sales of newly built homes in May soared 12% compared with April and were 20% higher than May 2022, in line with a report Tuesday from the U.S. Census. Builders are driving demand partly by offering incentives, like paying down mortgage rates.
Last week the common contract rate of interest for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to six.75% from 6.73%, with points remaining at 0.64 (including the origination fee) for loans with a 20% down payment. The typical rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $726,200) rose more sharply to six.91% from 6.80%.
“The spread between the jumbo and conforming rates widened to 16 basis points, the third week in a row that the jumbo rate was higher than the conforming rate,” Kan said. “To place this into perspective, from May 2022 to May 2023, the jumbo rate averaged around 30 basis points lower than the conforming rate.”
The widening spread and the rise within the jumbo rate stem from the recent regional bank failures. Lenders hold jumbo loans on their balance sheets, because Fannie Mae and Freddie Mac do not buy loans of that size. Bank credit, especially at community banks, has tightened substantially, leading to higher rates.
Applications to refinance a house loan rose 3% for the week but were 32% lower than the identical week one 12 months ago. The overwhelming majority of borrowers today have mortgages with rates of interest below 4%.
