Lowest Mortgage Demand in Three Months Recorded

Last week saw a surge in mortgage rates, spurred by robust economic data intensifying fears that the Federal Reserve might not decrease interest rates soon. Consequently, the demand for mortgages hit the lowest point since late February.

The average contractual interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) climbed from 6.69% to 6.91%, with points escalating from 0.66 to 0.83 (inclusive of the origination fee) for loans backed by a 20% down payment. According to the Mortgage Bankers Association, this was the average weekly rate, although daily observations saw the rate exceed 7%.

Given these circumstances, applications for mortgage refinancing, which are highly responsive to rate changes, shrank by 7% last week compared to the week prior after adjusting for seasonal factors. The volume of applications was 45% below the same week the previous year.

Loan applications to purchase a home declined by 3% weekly and were 31% down compared to last year’s week.

“Last week’s increase in rates resulted in a decrease in applications for both purchase and refinance loans,” stated Michael Fratantoni, Chief Economist at MBA, in a press release. “While refinance demand is almost entirely dependent on rate levels, purchase volume is hampered by a dearth of homes available on the market.”

With house prices showing signs of recovery, elevated mortgage rates, and housing supply significantly below normal levels, prospective homebuyers are feeling the pinch in affordability. Higher rates discourage current homeowners from putting their properties on the market. The majority of homeowners today have mortgages with interest rates under 5%.

Mortgage rate trends are mainly dependent on new economic data. The next piece of this data, the government’s monthly employment report, is set to be released this Friday.

The current landscape of the mortgage market reflects the impact of rising interest rates and limited housing inventory. As potential homebuyers face affordability challenges and homeowners hesitate to sell, the demand for mortgages has reached its lowest point in three months. The future direction of mortgage rates will be closely tied to upcoming economic indicators, with the government’s monthly employment report holding particular significance. As market conditions evolve, buyers and sellers will navigate the complex dynamics that shape the housing market.