Mortgage Demand Plummets as Interest Rates Soar Above 7%
New houses are seen for sale at Woodland Village, built by Lifestyle Homes housing developer, in Cold Springs, Nevada, on June 28, 2023. – Andri Tambunan | AFP | Getty Images
Mortgage interest rates reached their highest point since early December last week, and the impact on mortgage demand has been significant. According to the Mortgage Bankers Association’s seasonally adjusted index, total application volume fell by 10.6% compared to the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) climbed to 7.06% from 6.87%. This increase came with a rise in points from 0.65 to 0.66 (including the origination fee) for loans with a 20% down payment.
Mike Fratantoni, the MBA’s chief economist, noted, “Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near-term rate cut.”
The decline in mortgage demand was evident in both refinancing and home purchase applications. Refinancing applications dropped by 11% compared to the previous week and were only 0.1% higher than the same week last year. This significant decrease in demand can be attributed to rates jumping above 7%. One year ago, the 30-year fixed rate stood at 6.62%.
Applications for mortgages to purchase homes also experienced a decline, falling by 10% for the week and 13% lower compared to the same week last year. These figures represent the lowest level since early November 2023. Fratantoni explained that “potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”
The increase in rates has led to a rise in the adjustable-rate mortgage (ARM) share of activity, accounting for 7.4% of total applications. While ARMs offer lower interest rates, they are considered riskier due to the potential for higher rates after a fixed period.
Mortgage rates surged even higher following a monthly government report on wholesale prices, which highlighted persistent inflation hotter than most analysts had anticipated. These rates have remained relatively stable to start this week.
Although the current situation poses challenges for potential homebuyers, it’s important to stay informed about the latest developments in the mortgage market. For more information on finance and economics, visit Business Today.