Mortgage Rates Jumped To Their Highest Level in More Than Three Years

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Mortgage rates jumped to their highest level in more than three years last week yet the purchase index increased 0.64% from one week earlier. Mike Fratantoni, Mortgage Bankers Association’s senior vice president and chief economist said This Week in Real Estate that “it appears to be promising news that purchase application volume has not declined, as many potential buyers are likely feeling the squeeze in their purchasing power.” Home prices continue to surge. The unemployment rate in March was 11.1 percentage points lower than its recent high in April 2020 and just 0.1 percentage point higher than the rate in February 2020. Residential construction employment currently exceeds its level in February 2020. Below are a few newsworthy events from the final days of the first quarter that influence our business: 

Housing Prices Are Still Surging, But A Bubble Doesn’t Seem Likely. It’s highly anomalous for housing prices to rise over 32% in a span of two years, and so the trend is causing some economists to start worrying about a possible bubble. But there is one big difference between today’s bull market in housing and the one that ended so badly more than a decade ago. Generally speaking, we are not seeing the kind of speculation that was so rampant back then. Shady lending practices, to include very small or even no down payments, adjustable-rate mortgages, mortgages without proper documentation, teaser rates, pay-option ARMs and inflated sales appraisals, are not contributing in any meaningful way to the strength in housing prices we are now seeing. And more critically, there is only a very limited market for bonds backed by sub-prime or Alt-A mortgages, keeping origination activity for unqualified borrowers limited as well. Rather than speculation and easy credit, there has simply been a large mismatch between the supply of and demand for housing. On the supply side, it has become fairly obvious that new home construction has been far too low since the GFC. Artificially suppressed interest rates undoubtedly pulled forward some home price appreciation, and the massive appreciation in home prices to date will, unfortunately, lock some prospective first-time buyers out of the market. But it’s hard to see any kind of crash similar to the GFC. Demand is simply too strong while supply is too limited.

Rate Hikes Haven’t Depressed Interest In Purchase Mortgages – Yet. The seasonally adjusted purchase index increased 0.64% from one week earlier, showing resilience while rates climb, but was still down 10.1% year over year. Meanwhile, few borrowers these days have an incentive to refinance their mortgage. According to the MBA, refi applications fell 15% from the prior week and 60% from a year ago. “Mortgage rates jumped to their highest level in more than three years last week, as investors continue to price in the impact of a more restrictive monetary policy from the Federal Reserve,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement. It appears to be promising news that purchase application volume has not declined, as many potential buyers are likely feeling the squeeze in their purchasing power from the jump in rates,” the economist said.

Job Growth Continued In March. The labor market recovery is continuing, as employment in some sectors, such as professional and business services, financial activities, and retail sectors, is now above pre-pandemic levels. Construction industry employment (both residential and non-residential) totaled 7.6 million and has returned to its February 2020 level. Residential construction gained 7,600 jobs, while non-residential construction added 11,300 jobs for the month. Residential construction employment currently exceeds its level in February 2020, while 76% of non-residential construction jobs lost in March and April have now been recovered. In the first quarter of 2022, nearly 1.7 million jobs were created, and monthly employment growth averaged 562,000 per month, the same as the average monthly gain for 2021. Meanwhile, the unemployment rate decreased by 0.2 percentage points to 3.6% in March. It was 11.1 percentage points lower than its recent high of 14.7% in April 2020 and 0.1 percentage point higher than the rate in February 2020.

Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest Real Estate and Berkshire Hathaway HomeServices Real Estate Professionals is eligible to receive no-obligation home warranty coverage from American Home Shield the first six months the home is listed with our company?