Mortgage rates surged last week, reaching their highest level in 23 years, causing a significant drop in demand from homebuyers, which hit a 28-year low. The Mortgage Bankers Association reported a 4.2% decrease in total mortgage application volume compared to the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $726,200) rose to 7.31% from 7.16%, accompanied by an increase in points from 0.68 to 0.78 (including the origination fee) for loans with a 20% down payment. In contrast, the rate was 5.65% during the same period last year.
Joel Kan, an economist at the MBA, attributed the spike in Treasury yields to concerns about lingering inflation and illiquidity in the markets. The resulting impact was a 5% decline in applications for mortgages to purchase homes, marking a 30% decrease compared to the corresponding week in the previous year. Buyer demand fell to its lowest level since December 1995. In addition to high interest rates, potential homebuyers are grappling with elevated prices and extremely limited housing supply, with the number of available homes on the market near a 25-year low, as reported by the National Association of Realtors.
The share of adjustable-rate mortgage (ARM) applications increased to 7.6%, the highest level in five months. ARM applications saw a 4% weekly increase as some buyers sought to reduce their monthly payments by assuming interest rate risk after the initial fixed period.
Refinancing activity also experienced a decline, with a 3% drop in applications for home loan refinancing compared to the previous week, and a 35% decrease year over year. The refinance share of mortgage activity rose to 29.5% of total applications from 28.6% in the previous week. However, given that most homeowners already have rates below the 5% range, the number of homeowners who can benefit from refinancing is limited.
Mortgage rates continued their upward trajectory this week, hovering around 7.5%, according to Mortgage News Daily.