After a brief period of decline in May, mortgage rates started to climb again last week, causing a significant impact on mortgage demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 7.05% from 7.01%, with points also rising. This was the first increase in four weeks, and although the percentage change may not seem significant, it is important to note that rates had previously dropped back into the high 6% range.
The rise in mortgage rates led to a 5.7% decrease in total mortgage application volume compared to the previous week. Both purchase and refinance applications saw a decline, resulting in overall activity reaching its lowest level since early March. Borrowers are highly sensitive to even small increases in rates, which has affected the refinance market and kept purchase applications below levels seen last year.
Refinance demand, which was showing signs of a slight recovery, took a hit with a 14% drop for the week. Despite this decrease, it was still 12% higher than the same period last year. On the other hand, applications for mortgages to purchase homes fell by 1% for the week and were 10% lower than the same time last year.
There are limited levels of existing homes for sale, making it difficult for buyers to find listings within their price range that meet their requirements. Joel Kan, an economist at the MBA, highlighted this issue, stating that many buyers are struggling to find suitable properties. This shortage of available homes, coupled with rising mortgage rates, is contributing to the challenges in the housing market.
Mortgage rates saw a sharp increase at the beginning of the week, rising by 12 basis points in just one day. This sudden jump in rates further added to the concerns in the housing market, impacting both potential buyers and current homeowners looking to refinance.
The recent rise in mortgage rates has had a notable impact on mortgage demand, leading to a decrease in overall application volume. The sensitivity of borrowers to rate changes, coupled with limited housing inventory, is creating challenges for both buyers and sellers in the current market environment. It remains to be seen how further rate fluctuations will affect the housing market in the coming weeks.