Interest Rates Stay High, Resulting in a Decrease in Mortgage Demand

Mortgage rates remained stagnant last week, hovering near a recent high. The continuous rise in home prices has resulted in a decline in potential homebuyers.

The Mortgage Bankers Association’s seasonally adjusted index indicates a 1.8% 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 ($726,200 or less) remained flat at 6.87%. Points decreased slightly from 0.66 to 0.65 (including the origination fee) for loans with a 20% down payment. These rates reached over 7% a few weeks ago and have yet to significantly decrease.

Consequently, there was a 3% drop in mortgage applications for home purchases during the week, showing a 23% decrease compared to the same week last year when rates were in the mid 5% range. The decline in purchase activity is partly due to a 10% decrease in FHA applications. The Federal Housing Administration, which offers low down payment loans, is popular among lower-income buyers. Clearly, the market is becoming less and less affordable for them.

“The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of May,” stated Joel Kan, an economist at the MBA, implying that more activity is now focused on the higher end of the market.

Refinancing applications remained relatively stable for the week, but were 30% lower compared to the same week last year. Most borrowers already have interest rates lower than the current rate, making them ineligible for a refinance. Those looking to access cash from their homes are opting for second home equity loans to avoid losing the current rate on their primary loan.

Mortgage rates increased at the start of this week, crossing over to 7.04% on Tuesday, according to Mortgage News Daily. Rates are expected to fluctuate later today following the Federal Reserve’s latest interest rate decision and press conference. The Federal Reserve is widely anticipated to raise its benchmark interest rate by 0.25%.

“The Fed Funds Rate does not directly control mortgage rates. In other words, mortgage rates can still decrease tomorrow even if the Fed hikes. They can also increase depending on what Fed chief Jerome Powell has to say about the Fed’s policy stance,” explained Matthew Graham, the Chief Operating Officer at Mortgage News Daily.