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Mortgage lending took a nosedive across the U.S. in the first quarter of 2022, according to a new report from ATTOM

Secured mortgages fell 18% from the fourth quarter of 2021 and were down 32% from the same time last year — the biggest year-over-year drop since 2014. This marked the fourth quarterly decrease, which the data management company said was the result of “double-digit downturns in purchase and refinance activity, even as home-equity lending rose.”

Along with the 32% decline in residential mortgages, the report found the number of new loans fell for the fourth straight quarter, meanwhile refinance lending fell another 22% and purchase mortgages were down 18%. 

Mortgage rates have climbed to their highest level since 2008, pinching home buyers’ budgets. The 30-year fixed-rate mortgage averaged 6.13% this week, way above its 2.93% average just one year ago, Freddie Mac reports. The Federal Reserve’s decision Wednesday to raise its key benchmark rate by the highest amount in 28 years sent shock waves through financial markets, including adding further pressure on mortgage rates.

“These rising mortgage rates hurt affordability and decrease the purchasing power of many buyers,” Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, wrote on the association’s blog. “In addition to increasing the amount buyers will pay to borrow for their mortgage, higher interest rates lower their purchasing power since a larger portion of their monthly payment will be put toward interest.”

This means more buyers must readjust their home-shopping budgets, as the impact of higher rates translates to a 25% drop in house hunters’ purchasing power since the beginning of the year.

The housing market is entering the ‘most significant contraction in activity since 2006,’ says Freddie Mac economist.

Rick Sharga, executive vice president of market intelligence at ATTOM, said the drop-off in first quarter refinancing activity is no surprise with mortgage rates rising as rapidly as they have. 

The latest increase in mortgage rates has largely been attributed to the Fed’s hike of 75 basis points to its key benchmark rate. “It’s possible that this large increase could be somewhat of an over-correction on the part of lenders, and, as a result, it may fall somewhat over the coming weeks as lenders better adjust to the current high-inflation environment,” Channel says. “Mortgage rates have already risen considerably higher and faster than what most predicted they would at the start of the year—and, as evidenced by today’s latest figures, lenders have shown a willingness to continue to raise rates, even as homebuyer demand falls.”

Mortgage applications for home purchases—viewed as a gauge of future homebuying activity—are down 16% year over year, according to the Mortgage Bankers Association.

“The market is going through a transition,” says Hale. “The housing market over the last few years has continued to grow more and more competitive. [Now] it’s going to feel a little like whiplash. The market is still competitive, but the tide is shifting.”

Home sellers will also likely need to adjust their expectations as they may not receive the windfall they expected. The bidding wars they expected, offers of tens of thousands of dollars over their asking prices, and legions of buyers willing to waive just about every contingency might not materialize. Buyers are now struggling with higher prices and mortgage rates. So, they might have less money to put toward a home than they would have just a year earlier.

How high will mortgage rates go in 2022?

By the end of 2022, experts anticipate that the 30-year fixed mortgage rate could land between 5.8% and 7.0 percent. For the 15-year fixed mortgage rate, their predictions fall between 3.9% and 6.0 percent.

When will rates stop rising?

“The outlook is for mortgage rates to rise even further in the next couple of years. However, as inflation will start slowing down, mortgage rates won’t rise as fast as they have been rising.”

Advice to home buyers and homeowners 

“Keep in mind that, even though mortgage rates are higher now than last year, on a historical level rate aren’t as high as they used to be. For example, in 2002, the average rate on a 30-year fixed mortgage was about 7 percent.”

When will rates stop rising?

“Unless something unexpected happens, it seems likely that mortgage rates will continue to go up — although a bit more slowly — through the rest of the year. Assuming that the Fed’s actions get inflation under control, we could see rates begin to moderate and even move back down. A lot also depends on the market for US Treasuries: If the yields hit or surpassed 3% on 10-year bonds, it’s hard to see mortgage rates falling.”

Advice to home buyers and homeowners

“Both interest rates and home prices are very likely to go up for the foreseeable future. Buying a home today instead of a year ago requires a mortgage payment between 25% and 30% higher than it would have been in 2021. For buyers ready for the financial responsibility of homeownership, waiting is much more likely to increase their costs rather than save them money.”

“Unless something unexpected happens, it seems likely that mortgage rates will continue to go up — although a bit more slowly — through the rest of the year.”

–Rick Sharga, executive vice president, ATTOM

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