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Mortgage Demand Is Less Than Half What It Was A Year Ago

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Due to rising interest rates and record high inflation, total mortgage application volume was 52.7% lower last week than the same week last year, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index.

The MBA found that “Mortgage applications in the US increased 6.6% in the week ended June 10th, the first increase in five weeks, but were 52.7% lower than a year earlier. The purchase index jumped 8.1% and the refinancing 3.7%. Meanwhile, the average contract rate on a 30-year fixed-rate mortgage rose by 25 basis points to 5.65%, the highest level since late 2008.”

“Mortgage rates followed Treasury yields up in response to higher-than-expected inflation and anticipation that the Federal Reserve will need to raise rates at a faster pace,” said Joel Kan, associate vice president of economic and industry forecasting at the MBA.

“Despite the increase in rates, application activity rebounded following the Memorial Day holiday week but remained 0.29 percent below pre-holiday levels,” Kan added.

Last week’s increase came after the total mortgage application volume reached its lowest level in 22 years.

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months,” Kan said last week. “These worsening affordability challenges have been particularly hard on prospective first-time buyers.”

As noted by The Wall Street Journal, a median American household needed 38.6% of its income to cover payments on a median-priced home in March. The figure is an increase from 32.6% at the end of 2021 and the highest level since August 2007.

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1 Comment

1 Comment

  1. LisaMarie Doherty

    June 15, 2022 at 7:19 pm

    This is very market specific. We have a lot of cash in the marketplace. Is the MBA taking that into account? Buyers are using bitcoin to invest also.

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Economy

Atlanta Fed’s GDP Tracker Shows United States May Be In A Recession

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The United States has likely entered a recession, according to the Federal Reserve’s key gauge for measuring economic activity.

The Atlanta Fed’s GDPNow measure, which tracks economic data in real time and continuously adjusts projections, says that the United States economy will shrink by 2.1% in the second quarter. A 2.1% contraction in the second quarter paired with the first quarter’s decline of 1.6% would meet the definition of a recession.

“GDPNow has a strong track record, and the closer we get to July 28th’s release [of the initial Q2 GDP estimate] the more accurate it becomes,” wrote Nicholas Colas, co-founder of DataTrek Research.

The tracker fell dramatically last week from an estimate of 0.3% after data “showing further weakness in consumer spending and inflation-adjusted domestic investment prompted the cut that put the April-through-June period into negative territory,” CNBC reported.

“One big change in the quarter has been rising interest rates,” CNBC added. “In an effort to curb surging inflation, the Fed has jacked up its benchmark borrowing rate by 1.5 percentage points since March, with more increases likely to come through the remainder of the year and perhaps into 2023.”

Last week, Federal Reserve Chairman Jerome Powell warned that the decision to fight inflation by increasing interest rates was “highly likely” to cause pain to Americans.

During the European Central Bank forum, host Francine Laqua asked Powell, “If you’re speaking out to the American people to try and help them understand how long it will take for, you know, monetary policy to go back to something that resembles normalcy … what would you tell them?”

“I would say that we fully understand and appreciate … the pain people are going through dealing with higher inflation, that we have the tools to address that and the resolve to use them, and that we are committed to and will succeed in getting inflation down to two percent,” Powell responded.

“The process is likely, highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” he added.

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Economy

Biden’s Fed Chairman: Solving Inflation ‘Highly Likely To Involve Some Pain’ For Americans

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On Wednesday, Federal Reserve Chairman Jerome Powell said that solving the inflation crisis is “highly likely” to cause pain to Americans but that it would be less painful than not addressing inflation.

During the European Central Bank forum, host Francine Laqua asked Powell, “If you’re speaking out to the American people to try and help them understand how long it will take for, you know, monetary policy to go back to something that resembles normalcy … what would you tell them?

“I would say that we fully understand and appreciate … the pain people are going through dealing with higher inflation, that we have the tools to address that and the resolve to use them, and that we are committed to and will succeed in getting inflation down to two percent,” he responded.

“The process is likely, highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” Powell added.

Powell’s comments come as inflation has reached the highest rate in more than 40 years with prices rising 8.6% from May 2021 to May 2022, according to a new report from the Bureau of Labor Statistics.

In order to bring down inflation, the Federal Reserve increased the interest rate by 0.75% earlier this month – the highest increase since 1994 – and warned of additional increases in the interest rate in the future.

“The three-quarter-point hike brings the federal funds rate to between 1.5% and 1.75%. The federal funds rate dictates what it costs for banks to borrow money from each other. And, generally, higher interest rates mean it’s more expensive for consumers to get a mortgage, obtain a loan to buy a vehicle and to carry a balance on a credit card,” NBC News reported. “The expected effect of these changes is that consumers will spend less and the heightened demand for goods — one of the drivers of inflation — will slow down.”

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