Rosalind Evans
Mortgage rates have hit their highest levels since August, sparking a significant drop in demand from homeowners and potential buyers alike. As interest rates climb for the third consecutive week, many borrowers are reconsidering their plans, leading to a 17% decline in total mortgage applications, according to the Mortgage Bankers Association (MBA).
Mortgage Rates Rise, Pushing Borrowers Away
Interest rates on 30-year fixed-rate mortgages with conforming loan balances jumped to 6.52%, compared to 6.36% the week before. In addition to higher rates, points increased slightly to 0.65 from 0.62 for loans with a 20% down payment. The MBA reported that these higher borrowing costs are deterring both refinancers and new homebuyers.
Refinancing Takes a Major Hit
Refinancing applications took the largest hit, dropping by 26% from the previous week. Despite this sharp decline, refinance activity was still 111% higher than the same period last year, reflecting the much higher interest rates of 2023. “Rates at this time a year ago were 118 basis points higher, so anyone who bought a home last year could likely benefit from a refinance now,” explained Joel Kan, an MBA economist.
While refinancing surged earlier this year, the recent increase in rates has reduced demand, causing the refinance share of applications to dip below 50% for the first time in over a month.
Home Purchase Applications Slip but Stay Resilient
Mortgage applications to purchase homes fell 7% for the week, yet they remained 7% higher compared to the same time last year. According to Kan, some buyers, particularly first-time homebuyers using Federal Housing Administration (FHA) loans, are staying in the market thanks to improving inventory. “Demand is holding up to an extent for prospective first-time buyers. FHA purchase applications were little changed despite the increase in rates,” he noted.
Buyers Shift Focus to the Economic Outlook
While mortgage rates remain a key consideration, many buyers are focusing more on the broader economy and future uncertainties. The upcoming U.S. election in November has also led some buyers to delay large financial decisions. With the federal holiday on Monday, mortgage rates remained relatively stable at the start of the week, offering some respite for those monitoring market trends.
Navigating the Housing Market’s Challenges
The housing market continues to be shaped by fluctuating interest rates and evolving economic conditions. Though rising rates are limiting refinancing activity and discouraging some homebuyers, others are seizing new opportunities opened up by increased housing inventory. As the market shifts, potential buyers and homeowners must carefully weigh their options and monitor both economic conditions and interest rate trends.
