Mortgage Demand Stagnates at Lowest Point in Over Two Decades

Higher mortgage rates are adversely impacting mortgage demand, particularly for refinancing.

According to the seasonally adjusted index by the Mortgage Bankers Association, total mortgage application volume declined by 0.8% last week compared to the previous week.

For 30-year fixed-rate mortgages with conforming loan balances amounting to $726,200 or less, the average contract interest rate increased from 7.21% to 7.27%. This change was accompanied by an increase in points from 0.69 to 0.72, including the origination fee, for loans with a 20% down payment.

Refinance demand dropped by 5% for the week and plummeted by 31% compared to the same week last year. The refinance share of mortgage activity decreased to 29.1% of total applications from 30.0% the previous week. For comparison, during this period in 2020, when the pandemic affected monetary policy and interest rates hovered around 3%, the refinance share of mortgage applications was 63%.

Applications for home purchases increased by 1% compared to the previous week, but were 27% lower than the same week last year. The percentage of adjustable-rate mortgages (ARMs) in total applications also rose, indicating that potential buyers are utilizing various tools to reduce their monthly payments. ARMs offer lower interest rates, but they are considered riskier due to their shorter-term fixed rates.

Joel Kan, an economist at the Mortgage Bankers Association, stated that “mortgage applications decreased for the seventh time in eight weeks, reaching the lowest level since 1996.” He also highlighted the minimal refinance activity and reduced incentive for homeowners to sell and purchase new homes at higher rates.

Mortgage rates remained elevated at the beginning of the week, according to a separate survey from Mortgage News Daily. However, changes may occur following the release of the monthly Consumer Price Index on Wednesday.

Matthew Graham, Chief Operating Officer at Mortgage News Daily, emphasized that significant data releases could impact market dynamics. He stated, “there’s little question that any big departure from expectations will rock the bond boat for better or worse.”