Demand for mortgage applications stops when interest rates rise to the highest level since July

Borrowing rates last week rose at the fastest rate in over a year, throwing cold water on already cooling demand.

The total mortgage application volume was largely flat for the week, rising just 0.5% according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contractual interest rate for 30-year fixed-rate bonds ($ 548,250 or less) increased to 3.23% from 3.08%, with points rising to 0.48 from 0.46 (including the origin charge) for loans with 20% lower payment. The interest rate was 34 basis points a year ago, but the annual comparison has fallen steadily. Last autumn, mortgage rates were 100 basis points lower than the year before.

“Last week, lending rates jumped to market expectations of stronger economic growth and higher inflation,” said Joel Kan, MBA’s deputy vice president of economic and industrial forecasts. “The 30-year fixed interest rate experienced its largest one-week increase in almost a year and reached the highest [level] since July 2020. “

Applications to refinance a home loan, which are most sensitive to weekly interest rates, managed to get a 0.1% profit for the week and were only 7% higher than a year ago. In comparison, the refinancing volume in mid-December was over 100% higher than the year before.

The refinancing share of mortgage activity decreased to 67.5% of the total applications from 68.5% the previous week.

Mortgage applications to buy a home increased by 2% for the week and were only 1% higher than a year ago. Homebuyers are facing an expensive and lean housing market, as homebuilders struggle to meet demand and potential sellers retreat. When mortgage rates rise, affordability will weaken further, but more first-time buyers seem to venture in.

“The housing market is entering the hectic spring buying season with strong demand. Purchasing applications increased, with an increase in government applications – probably first-time buyers – reducing the average loan size for the first time in six weeks,” said Kan.

Borrowing rates declined slightly to begin this week as yields on the 10-year Treasury fell. The loan interest rate loosely follows that return.

“In the last two decades, there have been six months where mortgage rates have risen by at least 50 basis points. February 2021 was one of them,” said Matthew Graham, COO of Mortgage News Daily. “In other words, it was a really bad month for interest rates – so bad, in fact, that it’s become increasingly sensible to look for some relief just because things don’t tend to stay that bad for that long.”