Weekly Mortgage Demand Slumps as 7% Interest Rates Deter Buyers and Refinancers

Higher Rates Stifle Activity, With FHA and VA Borrowers Particularly Affected

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Last week saw a notable decline in total mortgage application volume, signaling the ongoing impact of elevated interest rates on both existing homeowners and prospective buyers.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume dropped 5.6% from the previous week, factoring in the Presidents Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances slightly decreased to 7.04%, down from 7.06% the week before. Despite this minor dip, the rate remained approximately a quarter percentage point higher than the previous year.

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Applications for refinancing home loans were particularly affected, experiencing a 7% decrease from the previous week and a 1% decline compared to the same week last year. Notably, demand for FHA and VA refinances saw an even sharper decline, reflecting the impact of higher rates on lower-income borrowers.

Prospective homebuyers also faced challenges, with mortgage applications for home purchases dropping by 5% for the week and 12% compared to the same period in the previous year. This trend underscores the significant deterrent effect of elevated mortgage rates on housing market activity.

Despite these challenges, there was a notable uptick in mortgage demand from buyers considering newly constructed homes, which surged by 19% year over year in January. However, the persisting shortage of existing inventory remains a key constraint on purchase volume.

MBA’s chief economist Mike Fratantoni highlighted the adverse impact of rates exceeding 7% on market dynamics, particularly given that rates were in the 6% range throughout January. The lack of clear catalysts for the recent rate movements further underscores the heightened volatility in the mortgage market, according to Mortgage News Daily’s chief operating officer, Matthew Graham.

With rates continuing to trend higher at the start of this week, the outlook for mortgage demand remains uncertain, as prospective buyers and refinancers navigate the challenges posed by elevated borrowing costs.