Mortgage refinance demand rises by 6%, applications decline 0.1%

Dec. 21 (UPI) -- The potential for recession in the U.S. economy is keeping a lid on new home construction, though demand could hold up if mortgage rates continue to decline, the chief economist at the Mortgage Bankers Association said Wednesday.

The MBA reported that, on a seasonally adjusted basis, applications to refinance a mortgage increased by 6% last week, though applications to purchase a home declined by 0.1% and are around 36% lower than during the same period last year.

Mike Fratantoni, a senior vice president at the MBA and its chief economist, said this is typically a slow time of year for refinancing anyhow so it's no big surprise that home buying is not moving in parallel with declining lending rates.

"The latest data on the housing market show that homebuilders are pulling back the pace of new construction in response to low levels of traffic, and we expect this weakness in demand will persist in 2023, as the U.S. is likely to enter a recession," he said. "However, if mortgage rates continue to trend down, as we are forecasting, more buyers are likely to return to the market later in the year, as affordability improves with both lower rates and slower home-price growth."

The U.S. Federal Reserve last week raised its lending rate by 50 basis points a less-aggressive move that was taken in response to lower levels of consumer inflation. Fed officials nonetheless said they'd continue to be aggressive until inflation falls from around 7% to its 2% goal. Its lending rate at 4.5%, meanwhile, is the highest its been in 15 years.

Mortgage rates declined, however. The average rate on a 30-year fixed-rate mortgage with balances of $647,200 or less was 6.34%, down from the previous rate of 6.42%. The rate on a 30-year mortgage backed by the FHA declined from 6.4% to 6.35%.

Some lenders, meanwhile, are in hot water. The Consumer Financial Protection Bureau on Tuesday ordered Wells Fargo Bank to pay more than $2 billion to consumers and a $1.7 billion civil penalty for legal violations across several of its largest product lines.

The bureau said Well Fargo's conduct led to billions in financial harm to its customers, including the loss of their vehicles and homes. The bank illegally assessed fees and interest charges on auto and mortgage loans that led to wrongful repossession.

The bank also had payments to auto and mortgage loans misapplied.