Mortgage credit availability loosened in December, even as house hunters continue to face higher prices that are hampering affordability, according to the Mortgage Bankers Association.

MBA’s Mortgage Credit Availability Index posted its highest reading since May 2021. However, credit availability is still 30% below pre-pandemic levels.

“Credit supply increased in December, with growth across both conventional and government segments of the market,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a news release. “December’s growth was driven by more ARM and lower credit score loan programs, which was likely due to a combination of the rising rate environment and affordability challenges. Lenders expanded offerings to qualified borrowers who were the most impacted by these market conditions. Additionally, there was an increase in government streamline refinance programs to aid borrowers still looking to refinance before rates rise even more.”

The MBA report also notes a 34% increase in jumbo credit availability.

Home prices continue to rise. The median existing-home price for all housing types in November was $353,900, up 13.9% compared to a year earlier, the National Association of REALTORS® reports.

As home prices press higher, so is the amount that home buyers are borrowing to pay for a house. The average amount borrowed to finance a home purchase climbed to $414,115 in November, according to MBA.

National Association of REALTORS®
Reprinted with permission

The average dollar amount of a mortgage purchase application hit a record of $418,500 as higher home prices force buyers to borrow more, the Mortgage Bankers Association reported this week.

“The continued rise in purchase loan application sizes is driven by high home price appreciation and the lack of housing inventory on the market—especially for entry-level homes,” says Joel Kan, vice president of economic and industry forecasters for the MBA. “The slower growth in government purchase activity [like in VA or FHA loans] is also contributing to the larger loan balances and suggests that prospective first-time buyers are struggling to find homes to buy in their price range.”

Home prices have been rising rapidly over the past year by double-digit percentages. The median existing-home price for all housing types in December was $358,000, up 15.8% compared to a year earlier ($309,200). Last month, every major region of the U.S. posted price gains, led by the South (up 20% compared to a year ago), according to the National Association of REALTORS®’ latest home sales report.

Down payments have also gotten larger. Buyers in the country’s 50 largest metros brought an average $46,283 to closing, according to a new study from LendingTree. View a breakdown of average down payments.

National Association of REALTORS®
Reprinted with permission

Mortgage rates are on the rise in the new year, just like economists predicted. The 30-year fixed-rate mortgage, which is up 45 basis points in less than a month, averaged 3.56% this week compared to 3.11% in the last week of 2021.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” says Sam Khater, Freddie Mac’s chief economist. “As a result of higher mortgage rates, purchase demand has modestly waned in advance of the spring homebuying season. However, supply remains near historically tight levels and home prices remain high, keeping the market competitive.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 20:

• 30-year fixed-rate mortgages: averaged 3.56%, with an average 0.7 point increase from last week’s 3.45% average. Last year at this time, 30-year rates averaged 2.77%.
• 15-year fixed-rate mortgages: averaged 2.79%, with an average 0.6 point increase, up from last week’s 2.62% average. A year ago, 15-year rates averaged 2.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.60%, with an average 0.3 point increase, rising from last week’s 2.57% average. A year ago, 5-year ARMs averaged 2.80%.

Freddie Mac reports national rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

National Association of REALTORS®
Reprinted with permission

The number of owners who can save by refinancing is down by more than half from the start of this year to 5.9 million, according to Black Knight data. Black Knight considers refinance candidates as 30-year mortgage holders who have a maximum 80% loan-to-value ratio, a credit score of 720 or higher, and a likelihood of reducing their current first lien by at least 0.75%.

The average 30-year fixed-rate mortgage has climbed by about 50 basis points in the first weeks of the year.

Still, even with recent mortgage rate increases aside, many of those 5.9 million borrowers could still see savings of $275 a month per borrower, according to Black Knight. More than 1 million of them could save at least $400 a month, and 661,000 borrowers could trim $500 or more from their monthly mortgage at current rates.

The remaining borrowers may have missed the opportunity to save by not refinancing when mortgage rates were below 3%. The number of refinance candidates has dropped significantly from about 11 million at the start of the year and is down by about 20 million in late 2020.

Mortgage applications to refinance a home are down by half from a year ago, the Mortgage Bankers Association reports.

Nearly 18 million homeowners have refinanced over the last two years.

While many homeowners over the last two years have taken advantage to lower their mortgage payments, they’ve also quickly accumulated equity, in record amounts. A sharp increase in home prices has meant that, in the last year, homeowners have gained an average of $50,200 in equity, according to data from the National Association of REALTORS®.

National Association of REALTORS®
Reprinted with permission

The fear of missing out, or “FOMO” as it’s called on social media, could prove to be a strong motivation for potential home buyers to enter the market quickly as mortgage rates rise. The potential loss of homebuying power may “supercharge the housing market ahead of the spring homebuying season,” says Mark Fleming, chief economist at First American Financial Corp., in a recent analysis.

The average 30-year fixed-rate mortgage has climbed by about 50 basis points in the first weeks of the year. Last week, rates averaged 3.56%, up from 2.77% a year ago, Freddie Mac reports.

The Federal Reserve has signaled an end to ultra-low rates, which observers expect to start climbing as soon as March. Mortgage rates tend to follow long-term bond yields, which also are expected to increase due to the Fed’s tightening of its monetary policy and its efforts to control inflation.

Economists foresee a 30-year fixed mortgage rate of 3.7% by the end of 2022, according to the National Association of REALTORS®. That still reflects a historically low rate but is well above what buyers have grown accustomed to in recent years.

“When mortgage rates increase, holding income constant, consumer house-buying power decreases,” Fleming says.

A scenario Fleming offers suggests that if the average mortgage rate stayed at its current level of about 3.5% through the spring homebuying season, assuming a 5% down payment and holding average household income constant at the November 2021 level of $69,800, homebuying power would fall by about $25,000. If rates increase to 3.7% by the end of 2022, however, homebuying power would drop by $36,000 compared to November 2021, while if mortgage rates reach 4%, homebuying power would fall by nearly $52,000.

“Rising mortgage rates impact affordability, but one of the root causes of rising mortgage rates is an improving economy, and an improving economy often leads to stronger wage growth,” he says. If incomes continue to increase at the current rate through the end of 2022, income growth could reduce the projected decline in homebuying power this year to a less severe $700 instead of $36,000, Fleming says.

National Association of REALTORS®
Reprinted with permission

Mortgage rates held steady overall this week, a welcome relief to home shoppers who may have been watching them rise week after week since the beginning of the year.

The 30-year fixed-rate mortgage averaged 3.55% this week, Freddie Mac reports.

“Following a month-long rise, mortgage rates effectively stayed flat this week,” says Sam Khater, Freddie Mac’s chief economist. “Recent rate increases have yet to significantly impact purchase demand, as history demonstrates that potential home buyers who are on the fence will often enter the market at the state of rate increase cycles.”

Economists are predicting that mortgage rates will continue to gradually increase over this year. The National Association of REALTORS® predicts rates to average 3.9% by the end of this year.

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 27:

• 30-year fixed-rate mortgages: averaged 3.55%, with an average 0.7 point, dropping slightly from last week’s 3.56% average. Last year at this time, 30-year rates averaged 2.73%.
• 15-year fixed-rate mortgages: averaged 2.80%, with an average 0.6 point, rising slightly from last week’s 2.79% average. A year ago, 15-year rates averaged 2.20%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.70%, with an average 0.2 point, rising from last week’s 2.60% average. A year ago, 5-year ARMs averaged 2.80%.

Freddie Mac reports average commitment rates along with points to better reflect the total upfront cost of obtaining the mortgage.

National Association of REALTORS®
Reprinted with permission