Mortgage Demand Plummets as Interest Rates Soar
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Higher mortgage rates have dealt a heavy blow to both existing homeowners and potential buyers. In the past week, total mortgage applications dropped by a staggering 5.6%, as reported by the Mortgage Bankers Association. This decline accounts for an additional adjustment to accommodate the Presidents Day holiday.
The average contract interest rate for 30-year fixed-rate mortgages, subject to conforming loan balances ($766,550 or less), dipped slightly from 7.06% to 7.04%. Simultaneously, points increased from 0.66 to 0.67, including the origination fee for loans with a 20% down payment. This rate is approximately a quarter of a percentage point higher compared to the previous year.
Consequently, applications for home loan refinancing decreased by 7% compared to the preceding week and by 1% compared to the same period last year. Mike Fratantoni, the MBA’s chief economist, highlighted the decline in interest for FHA and VA refinances, particularly among lower-income borrowers who rely on these loans due to their lower down payment requirements.
Applications for home purchases also took a hit, plunging 5% compared to the previous week, and landing 12% lower than the same period last year. However, Fratantoni did point out that mortgage demand from buyers interested in newly constructed homes witnessed a remarkable 19% year-over-year surge in January.
“This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don’t help,” added Fratantoni. It is noteworthy that mortgage rates in January remained in the 6% range.
In a separate survey conducted by Mortgage News Daily, it was revealed that mortgage rates rose again at the start of the current week. The 30-year fixed-rate mortgage now matches its highest level since early December 2023. Matthew Graham, Chief Operating Officer at Mortgage News Daily, noted that the recent rate hike had no discernible catalyst and that volatility levels have remained elevated for the past two weeks.
This latest data indicates the significant impact of rising interest rates on the mortgage market. Prospective homebuyers and existing homeowners alike are grappling with the challenges posed by these rapidly climbing rates.