Interest rates surge, causing mortgage demand from homebuyers to plummet to a record low in 28 years

The housing market in Centreville, Maryland is experiencing a significant shift. Mortgage rates have surged to levels not seen in 23 years, leading to a sharp decline in demand from potential homebuyers – the lowest in 28 years.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume dropped by 4.2% compared to the previous week.

Notably, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 7.16% to 7.31% last week. Points also experienced a slight increase from 0.68 to 0.78. These figures include the origination fee and are applicable to loans with a 20% down payment. To put it into perspective, last year’s rate was only 5.65%.

In light of these developments, Joel Kan, an economist at the MBA, commented, “Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high.”

Unsurprisingly, the impact on the housing market has been significant. Mortgage applications for home purchases fell by 5% compared to the previous week and were a staggering 30% lower than the same week last year. Buyer demand is now at its lowest point since December 1995. This decline can be attributed not only to the high interest rates and soaring prices but also to an extremely limited supply. In fact, the number of homes available on the market is at a nearly 25-year low, according to data from the National Association of Realtors.

Furthermore, the popularity of adjustable-rate mortgages (ARMs) has increased due to these market conditions, with the share of ARM applications rising to 7.6% – the highest level in five months. The number of ARM applications also saw a 4% increase from the previous week.

Explaining this trend, Kan stated, “Some homebuyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period.”

Refinance applications have also been impacted, falling by 3% for the week and a substantial 35% lower compared to the previous year. However, the refinance share of mortgage activity rose to 29.5% of total applications, up from 28.6% the previous week. This increase is largely due to the limited number of homeowners who can benefit from refinancing, as most of them already have rates well below 5%.

Unfortunately, mortgage rates have continued to climb this week, reaching around 7.5% according to Mortgage News Daily. This ongoing upward trend is causing further concern in the housing market.