Weekly Mortgage Demand Plateaus Amid Rising Interest Rates

Mortgage demand is struggling to contend with what appears to be another upswing in interest rates, causing homebuyers, in particular, to pull back. Last week, total mortgage application volume rose 3.7% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. However, this increase was solely due to refinancing activity.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.80% from 6.78%, with points decreasing to 0.59 from 0.65 for loans with a 20% down payment. Despite this weekly average, there was a significant surge in rates last Friday after a higher-than-expected monthly employment reading from the U.S. Labor Department for January, followed by another increase on Monday after a manufacturing report also exceeded expectations. These consecutive jumps resulted in the third-biggest increase in mortgage rates since March 2020.

Even though rates were lower for the majority of last week, applications for a mortgage to purchase a home fell 1% compared with the previous week and were 19% lower than the same week one year ago. According to Joel Kan, an MBA economist, this decline in purchase activity is attributed to low housing supply, despite a strong start to 2024 compared to the final quarter of 2023.

On the other hand, applications to refinance a home loan increased by 12% for the week and were 1% higher than a year ago. However, Matthew Graham, chief operating officer at Mortgage News Daily, pointed out that while this weekly jump might seem significant, the base is so low that even a small amount of demand results in a large weekly percentage change. Additionally, the refinance share of mortgage activity increased to 35.4% of total applications from 34.2% the previous week.

Although mortgage rates fell back slightly on Tuesday, the recent move higher was an adjustment to surprisingly strong economic data, according to Graham. He noted that a slew of Fed speakers has confirmed this, indicating that they still expect rate cuts in 2024, albeit not as quickly as the market had anticipated at the beginning of last week.