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Mortgage rates jumped last week to the highest level in 23 years, pushing mortgage demand from homebuyers to the lowest level in 28 years.
Total mortgage application volume fell 4.2% last week, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.31% from 7.16%, with points rising to 0.78 from 0.68 (including the origination fee) for loans with a 20% down payment. Last year that rate was 5.65%.
“Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high,” said Joel Kan, an MBA economist, in a release.
As a result, applications for a mortgage to purchase a home dropped 5% for the week and were 30% lower than the same week one year ago. Buyer demand stood at the lowest level since December 1995. Potential buyers are dealing not only with high interest rates and high prices, but extremely low supply. The available homes on the market at the end of July were close to a quarter-century low, according to the National Association of Realtors.
The adjustable-rate mortgage share of applications increased to 7.6%, which was the highest level in five months. The number of ARM applications rose 4% week to week.
“Some homebuyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period,” noted Kan.
Applications to refinance a home loan fell 3% for the week and were 35% lower year over year. The refinance share of mortgage activity increased to 29.5% of total applications from 28.6% the previous week. There are very few homeowners who can now benefit from a refinance given that most have rates well below the 5% range.
Mortgage rates continued to climb this week and are now right around 7.5% according to Mortgage News Daily.