Mortgage Demand Slumps Amidst Soaring Interest Rates, Reaching a Nearly 23-Year High

Mortgage interest rates have reached their lowest point since 2000, resulting in a significant decline in mortgage demand. This drop in demand is now close to its lowest point in 27 years.

Last week, total mortgage application volume decreased by 1.3% compared to the previous week, as reported by the Mortgage Bankers Association’s seasonally adjusted index. This volume is 25.5% lower than the same week last year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) has risen to 7.41% from 7.31%. However, the points have decreased to 0.71 from 0.72 (including the origination fee) for loans with a 20% down payment. This rate is significantly higher at 6.52% compared to one year ago.

The 30-year fixed jumbo mortgage rate has increased to 7.34%, which is the highest rate recorded in the history of the MBA’s jumbo rate series dating back to 2011.

“Based on the FOMC’s most recent projections, rates are expected to remain high for a longer period, leading to the increase in Treasury yields,” noted Joel Kan, an economist at the MBA, referring to the Federal Open Market Committee. “The overall number of applications has declined as potential homebuyers and homeowners are feeling the impact of these elevated rates.”

Refinancing applications experienced a 1% drop in the past week, and they were 21% lower compared to the same period last year. With interest rates currently high, very few borrowers can benefit from refinancing, after enjoying historically low rates during the early years of the pandemic.

Applications for home purchase mortgages also experienced a decline of 2% in the past week, and they were 27% lower compared to the same week last year.

Today’s potential homebuyers are facing a unique situation, marked by historically low housing supply, along with rising interest rates and prices. While higher interest rates traditionally dampen home prices, the severe imbalance between supply and demand is pushing prices even higher, despite an increasing number of buyers who are unable to afford a home.

According to the Mortgage News Daily, interest rates continued to rise this week. Moreover, a separate report indicated a drop in the sales of newly built homes in August, as they were affected by the limited supply in the resale market. August sales recorded a decline of nearly 9% compared to the previous month’s pace, reaching the lowest level since March.