A potential buyer walks into an open house in Parkland, Florida, on May 25, 2021.
The mortgage interest rates have surged significantly, with the rate on the government’s low-down-payment option reaching its highest level in 21 years. Consequently, there has been a sharp drop in mortgage demand, as evidenced by a 3.1% decline in total application volume compared to the previous week, as reported by the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) rose to 7.09% from 6.93%, with points increasing to 0.70 from 0.68 (including the origination fee) for loans with a 20% down payment. For jumbo loans, the average rate reached 7.04%.
The rate for FHA loans, which are popular among first-time or lower-income borrowers due to their low down payments, climbed to 7.02%, marking the highest level since 2002.
“Last week, Treasury yields and mortgage rates witnessed an upward trend due to the Treasury’s funding announcement and the downgrade of the U.S. government debt rating,” said Joel Kan, MBA’s vice president and deputy chief economist.
Mortgage applications for home purchases declined by 3% compared to the previous week and were 27% lower than the same period last year. The burden of high mortgage rates is not only affecting affordability but also discouraging current homeowners from moving. Homeowners with existing mortgages, who are benefitting from interest rates in the range of 3% to 4%, are delaying their plans to purchase new homes to avoid paying significantly higher interest rates.
Furthermore, applications for refinancing home loans dropped by 4% for the week and were 37% lower than the corresponding period last year.
According to a separate survey conducted by Mortgage News Daily, mortgage rates have remained above 7% to begin the current week. However, there is expected to be a more significant movement on Thursday with the release of the monthly inflation data.
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