Mortgage Demand Plummets as Interest Rates Soar to Near 8%

In a surprising turn of events, the demand for mortgages has dropped to its lowest point since 1996, primarily driven by the steep rise in interest rates. As they edge closer to the 8% mark, potential homebuyers and current homeowners looking to refinance are rethinking their plans.

Last week, a significant increase in mortgage rates was observed, with total mortgage demand declining by 6% from the week before. This change is primarily attributed to the recent surge in Treasury yields, which historically directly impacts mortgage rates.

The numbers paint a clear picture. The average interest rate for 30-year fixed-rate mortgages with conforming loan balances has risen from 7.41% to 7.53%. This is further reflected in the points increase, which went from 0.71 to 0.80 for loans backed by a 20% down payment. To put this into perspective, the rate for such mortgages stood at 6.75% just a year ago.

When it comes to refinancing, the scenario is not much brighter. Refinance applications witnessed a 7% drop in the past week and are now 11% below figures from last year. Surprisingly, refinances now constitute less than a third of all mortgage applications, a stark contrast to two years ago when they represented a whopping three-quarters of all applications.

Potential homebuyers aren’t faring well either. Applications for purchasing homes saw a 6% dip in the last week, and they are now 22% lower compared to figures from a year ago. As interest rates continue rising, many homebuyers are pushed out of the market.

Intriguingly, there’s been a noticeable uptick in adjustable-rate mortgages (ARMs) popularity. These mortgages, which typically offer lower rates for a fixed short term (like five or ten years), now makeup 8% of purchase applications. This is an increase from the 6.7% observed roughly a month ago.

A separate study from Mortgage News Daily provides further insight into this trend, showing that the average rate on a 30-year fixed mortgage has increased even more, touching 7.72%. Such rising numbers suggest investors are optimistic about economic data, which might signal the Federal Reserve to adopt an even more assertive high-interest rate policy.

For homeowners and potential buyers, these are indeed challenging times. As rates continue progressing upward, the housing market landscape is set for significant shifts.