Mortgage rates experienced a remarkable upswing last week, reaching their highest level since May, resulting in a decline in mortgage demand.
According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume dropped by 4.4% compared to the previous week. This decrease marks the lowest level of demand seen in a month.
The average contract interest rate for 30-year fixed-rate mortgages, with conforming loan balances of $726,200 or less, rose from 6.75% to 6.85%. Additionally, points increased from 0.64 to 0.65 (including the origination fee) for loans with a 20% down payment.
While the average rate for the week was 6.85%, a separate survey conducted by Mortgage News Daily revealed that the rate surpassed 7% on Thursday of the same week. Since then, it has remained above 7%, reaching 7.08% by Tuesday.
Consequently, mortgage demand for home purchases, which had been steadily increasing for three consecutive weeks, declined by 5% compared to the previous week and was 22% lower than the corresponding week of the previous year.
Joel Kan, the Mortgage Bankers Association’s deputy chief economist, acknowledged the challenge of housing affordability in many parts of the country, stating that rates remain over 1% higher than they were a year ago. “However, the average loan size for a purchase application declined to $423,500 – its lowest level since January 2023,” Kan added.
This decline in loan size is likely attributed to reduced homebuying activity in high-price markets and increased activity in lower price tiers.
The week also witnessed a 4% decline in applications to refinance home loans, marking a 30% decrease compared to the same week of the previous year.
It is expected that this year’s summer comparison will show a smaller decline as last summer experienced a significant increase in mortgage rates for the first time since the onset of the Covid pandemic, leading to a subsequent drop in refinance demand.
While the 30-year fixed-rate mortgage has remained above 7% throughout the week, upcoming employment data to be released on Thursday and Friday could influence the Federal Reserve’s future decisions, which are anticipated to include further rate hikes.