The share of government-backed mortgages aimed at helping rural homebuyers increased slightly in the week ended May 24, even as other areas and overall applications fell, according to the latest survey from the Mortgage Bankers Association.
USDA loans accounted for 0.4% of total applications this week, up from 0.3%.
Overall, mortgage applications fell nearly 6% overall as rising mortgage rates hit the housing market, slowing activity in the spring, the housing market’s most active period. Refinancing also fell 14%, the MBA said in a statement. Newsweek.
Other loans, including those backed by the U.S. Department of Housing and Urban Development (HUD), such as Federal Housing Administration (FHA) loans and Department of Veterans Affairs (VA) loans, also declined. The share of FHA loans fell to 12.7% in the week ending May 24, down from 12.8% the previous week. VA mortgages fell to 12% from 13.7% the previous week, according to the MBA data.
Newsweek The MBA was reached via email on Wednesday seeking further comment.
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A sharp rise in mortgage rates to more than 7 percent, with 30-year fixed rates rising for the first time in four weeks, contributed to the drop in applications, MBA deputy chief economist Joel Kan said in a statement.
“Rising interest rates led to a decline in mortgage application volumes heading into Memorial Day weekend,” Kang said. “Both purchase and refinance applications declined, with overall activity falling to its lowest level since early March. Borrowers remain sensitive to small increases in interest rates, which is impacting the refinance market and keeping purchase application volumes below last year’s levels.”
The housing market has struggled as prices remain at record highs amid a limited supply of homes for sale. Real estate platform Redfin noted last week that the median U.S. home sale price rose 4% to nearly $388,000, the highest since the company began tracking the data. The median asking price also rose to $420,000, also a record high. The price increases led to a 4.2% drop in home sales contracts, where sellers have accepted offers from buyers but the transactions have not yet closed, the biggest drop in three months.
“The number of existing homes for sale remains limited, leaving many buyers struggling to find a property in their price range that meets their needs,” MBA’s Kang said.
Mortgage rates are rising as home prices reach record levels and housing supply is constrained.
Borrowing costs are also rising for FHA loans, which the government uses to help homebuyers get “better terms” from lenders.
The MBA noted that the average contract interest rate on a 30-year fixed-rate mortgage insured by the FHA jumped to 6.85 percent in the week ending May 24, from 6.77 percent the previous week.
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