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Mortgage Market Outlook – October 2023

Recent developments in the U.S. mortgage market

Treasury yields rose to the highest levels in 16 years with the yield on 10-year Treasuries hitting a high of 4.8% on October 17, 2023. Higher 10-year yields have also pushed up mortgage rates to 23-year highs. The U.S. average 30-year fixed-rate mortgage as measured by Freddie Mac’s Primary Mortgage Market Survey® increased in August, reaching a high of 7.49% during the first week of October, a level not seen since December 2000. Higher rates have reduced mortgage demand. According to the Mortgage Bankers Association’s Weekly Applications Survey, the total mortgage application index was down 25% and the purchase index was down 27% over the year during the third week of September, while the refinance index was down 21% over the year. As compared to the pre-pandemic average of 2016-2019, purchase originations were down 41% during the third week of September and were down 58% as compared to the peak in early 2021.

While mortgage delinquencies have remained low so far, there was a slight uptick in delinquencies across the spectrum as per Transunion’s August 2023 report. Loans which were 30 or more days past due increased to 2.04% in August 2023 from 2% in July 2023. On the other hand, loans which were 60 or more days past due increased to 0.94% in August 2023 from 0.91% in July 2023. Serious delinquencies increased to 0.59% during August 2023 from 0.58% in July 2023 and 0.55% in August 2022.

The Outlook

Mortgage rates hitting new highs has presented many challenges, particularly for homebuyers. Given elevated interest rates, fewer buyers and sellers are likely to step into the housing market, affecting both the demand and supply. The combination of high mortgage rates dragging demand down and tight supply driven by the ratelock- in effect will keep sales volume low through the rest of the year.

Mortgage origination volume is expected to remain muted through the rest of the year. Although we forecast home prices to rise for the next twelve months, the positive impact of prices on origination volumes is offset by low sale volumes. We expect the refinance market to be impacted significantly by rising rates which would keep refinance volumes near historical lows. Together, we expect total mortgage originations to remain flat for the rest of the year with modest growth in 2024.

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