The demand for mortgages is declining as mortgage rates are on the rise once again. Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.87%, the highest rate since early December 2023. This has caused a 2% decrease in applications to refinance home loans compared to the previous week, though they are still 12% higher than one year ago. Mortgage applications for home purchases also dropped by 3% compared to the previous week, and they were 12% lower than the same week last year.
Joel Kan, an economist at the Mortgage Bankers Association, mentioned that elevated rates are contributing to affordability challenges and, combined with low existing housing inventory, are keeping purchase applications subdued. This sentiment was echoed by Chen Zhao, Redfin's economic research lead, who noted that both harsh winter weather and climbing mortgage rates have impacted house hunters' willingness to tour homes and make purchase decisions.
Additionally, a recent report from Redfin indicated an 8% decrease in pending home sales compared to the same period a year ago. The recent increase in mortgage rates was further exacerbated by a government report highlighting inflation levels higher than expected, causing the average rate on the 30-year fixed mortgage to reach 7.08%.
Overall, these developments in the housing market reflect the impact of rising mortgage rates on both refinancing and home purchase demand.