1 of 2 | An increase in the rate on a 30-year, fixed-term mortgage increased, curbing both applications for a home loan and for refinancing, the Mortgage Bankers Association found. File photo by Alexis C. Glenn/UPI | License Photo
May 17 (UPI) -- Rising lending rates are keeping some would-be homeowners on the sidelines as mortgage applications posted a steep decline over the week ending May 12, the Mortgage Bankers Association said Wednesday.
MBA Deputy Chief Economist Joel Kan said the average rate on a 30-year, fixed-term mortgage increased by nine basis points during the reporting week to reach 6.57%.
"Purchase applications decreased 5% to its slowest pace in a month, as buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce," he said.
The MBA put the interest on a 30-year, fixed-term mortgage at 6.48% last week, which led to a 6.3% increase in mortgage applications relative to prior week. Higher rates also curbed refinance activity. Kan said that, for the week ending May 12, refinancing accounted for 27% of all mortgage applications, nearly 8% lower than last week.
"Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive," he said.
Lending rates have been prohibitive over the last year as the Federal Reserve works to ease inflationary pressures. The price for all consumer goods posted an increase of 9% on an annual basis last summer, but that has cooled to around 5% over the 12-month period to April.
That's still 3% higher than the target rate set by the Federal Reserve, suggesting it's not cutting its rates anytime soon. Fed policy makers say the recognize the burdens of lending rates, but the consequences of lingering inflation may be more dramatic.
"We all know that high inflation makes it very hard for people to make ends meet," Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said Tuesday.
Current trends, she added, point to a long period slow growth in the U.S. economy.