Mortgage Rates Soar, Leading to a Decline in Home Loan Demand

Over the past six weeks, mortgage rates have continued to rise, resulting in a notable decrease in demand for home loans, reaching levels not seen since 1995. The Mortgage Bankers Association’s seasonally adjusted index reported a 6.9% drop in total application volume compared to the previous week.

Specifically, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (those amounting to $726,200 or less) rose to 7.70% from 7.67%. Meanwhile, points decreased to 0.71 from 0.75, including the origination fee, for loans with a 20% down payment. This increase marks the highest mortgage rate since November 2000. In comparison, the rate was at 6.94% during the same week one year ago.

Applications for mortgages to purchase homes saw a 6% week-to-week drop, and they were 21% lower than the same period the previous year. Applications to refinance home loans followed suit, declining by 10% for the week and showing a 12% decrease compared to the previous year.

The vice president and deputy chief economist at the MBA, Joel Kan, noted that both purchase and refinance applications decreased, with conventional applications experiencing more substantial drops. He also highlighted that the adjustable-rate mortgage (ARM) share was 9.3%, marking the highest share in 11 months.

Adjustable-rate mortgages offer lower rates and can be fixed for up to 10 years before the rate resets. More borrowers are turning to these loan products to gain purchasing power, given the rising interest rates and home prices.

To start the new week, mortgage rates have continued to rise, with the 30-year fixed-rate mortgage reaching 7.92%, marking a cyclical high. This increase was triggered by a considerably stronger-than-expected monthly retail sales report.