Decline in Mortgage Demand from Homebuyers to a 28-Year Low Amid Soaring Interest Rates

Last week witnessed a significant surge in mortgage rates, reaching their highest level in 23 years. Consequently, the demand from homebuyers declined to its lowest point in 28 years. According to the Mortgage Bankers Association’s data, total mortgage application volume dropped by 4.2% compared to the previous week.

The average interest rate for 30-year fixed-rate mortgages, with conforming loan balances ($726,200 or less), rose from 7.16% to 7.31%. Additionally, the origination fee experienced an increase from 0.68 to 0.78. Last year’s rate stood at 5.65%.

Joel Kan, an economist at the MBA, highlighted that the spike in Treasury yields had an impact on the mortgage market as concerns about inflation persisted. The current scenario resulted in a 5% decrease in applications for home purchases compared to the previous week and a 30% decline compared to the same week last year. Notably, the current demand is at its lowest since December 1995, primarily affected by high interest rates, elevated prices, and limited supply.

The share of adjustable-rate mortgage (ARM) applications increased to 7.6%, representing the highest level in the past five months. Moreover, the number of ARM applications rose by 4% week to week. This indicates that some homebuyers are willing to bear the risk of fluctuating interest rates after the initial fixed period with the intention of reducing their monthly payments.

Refinancing applications experienced a decline of 3% for the week and a 35% decline year over year. However, the refinancing share of mortgage activity increased to 29.5% compared to 28.6% the previous week. The limited number of homeowners who can benefit from refinancing is due to the fact that most already have rates below the 5% range.

Mortgage rates have continued their upward trajectory and are currently hovering around 7.5%, according to Mortgage News Daily.