Impact of Rising Mortgage Rates on Homebuyers

Persistent increases in mortgage rates are continuing to impact demand from both existing homeowners and potential homebuyers. The Mortgage Bankers Association’s seasonally adjusted index reported a 5.6% decrease in total mortgage application volume last week compared to the previous week, with an additional adjustment made to accommodate the Presidents Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) experienced a slight decrease from 7.06% to 7.04%, while points increased marginally from 0.66 to 0.67 (inclusive of the origination fee) for loans with a 20% down payment. This rate was approximately a quarter percentage point higher compared to the same period last year.

Mortgage application volume drops 5.6% as rates rise
Mortgage application volume drops 5.6% as rates rise, hitting both buyers and refinancers.

Consequently, applications for refinancing home loans saw a 7% decline from the previous week and a 1% decrease compared to the corresponding week one year ago.

According to Mike Fratantoni, MBA’s chief economist, “Higher rates in recent weeks have stalled activity, and last week it dropped more for those seeking FHA and VA refinances.” FHA and VA loans, typically utilized by lower-income borrowers due to their lower down payment requirements, experienced a decline in application volume.

Applications for mortgages to purchase homes also dropped by 5% for the week and were down by 12% compared to the same period last year. Fratantoni highlighted a noteworthy trend, stating that demand for mortgages from buyers eyeing newly constructed homes surged by 19% year over year in January.

Mortgage application volume drops 5.6% as rates rise
Mortgage application volume drops 5.6% as rates rise, hitting both buyers and refinancers.

He emphasized, “This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don’t help,” noting that rates were in the 6% range throughout January.

Meanwhile, according to a separate survey from Mortgage News Daily, mortgage rates moved higher again at the beginning of this week, with the 30-year fixed now matching the highest level since early December 2023.

Matthew Graham, chief operating officer at Mortgage News Daily, commented, “There were no interesting or obvious catalysts for the move, nor would we expect there to be when it comes to the level of volatility seen on almost any day of the past 2 weeks.”

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x