Mortgage demand from homebuyers drops 19% from a year ago, as interest rates surge abruptly higher

Fast-rising interest rates are taking their toll on mortgage demand, as both potential homebuyers and current homeowners head to the sidelines. Total mortgage application volume dropped 4.1% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s results include a separate adjustment for the Labor Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased to 6.97% from 6.85% percent, with points rising to 0.72 from 0.67, including the origination fee, for loans with a 20% down payment. That is a weekly average run by the MBA, but by last Thursday, rates had moved over 7%, according to a separate survey from Mortgage News Daily.

“Ongoing market concerns over spiking energy prices, persistently high inflation, and future monetary policy pushed bond yields and mortgage rates higher last week,” said Joel Kan, vice president and deputy chief economist at the MBA.

Applications to refinance a home loan, which are most sensitive to weekly rate changes, dropped 9% for the week and were 65% lower than the same week one year ago. Last year at this time, the interest rate on the 30-year fixed was 58 basis points, or more than half a percentage point, lower.

“The current level of rates eliminated much of the benefit to refinance for many borrowers, resulting in declines in conventional, FHA, and VA refinance applications,” Kan added