Homebuyer Interest in Mortgages Hits a 28-Year Low Due to Soaring Interest Rates


Last week, mortgage rates experienced a significant surge, reaching their highest levels in 23 years. Consequently, this spike in rates led to a sharp decline in mortgage demand from homebuyers, hitting the lowest point in 28 years.

According to data from the Mortgage Bankers Association, the total volume of mortgage applications fell by 4.2% during the past week when compared to the previous week, based on their seasonally adjusted index.

During the same period, the average contract interest rate for 30-year fixed-rate mortgages, conforming to loan balances of $726,200 or less, increased from 7.16% to 7.31%. Additionally, points on these loans, including the origination fee, rose from 0.68 to 0.78. It’s worth noting that just a year ago, this rate stood at a much lower 5.65%.

Joel Kan, an economist at the MBA, attributed these changes to a continuous rise in Treasury yields. This was driven by concerns over illiquidity and worries that the robust economy would keep inflation persistently high.

As a result of these developments, applications for mortgages to purchase homes dropped by 5% in the week and were down by 30% compared to the same period the previous year. Buyer demand plummeted to its lowest point since December 1995.

Prospective homebuyers are grappling not only with high-interest rates and elevated home prices but also with a severe shortage of available homes on the market. In fact, the inventory of homes for sale at the end of July reached its lowest point in nearly a quarter of a century, as reported by the National Association of Realtors.

The share of adjustable-rate mortgage (ARM) applications increased to 7.6%, marking its highest level in five months.

The number of ARM applications rose by 4% week over week. Some homebuyers are turning to ARMs to reduce their monthly payments, even if it means taking on some interest rate risk after an initial fixed period.

On the other hand, applications for home loan refinancing decreased by 3% for the week and were down by 35% year over year.

The refinance share of total mortgage activity increased slightly to 29.5% from the previous week’s 28.6%. However, the pool of homeowners who can benefit from a refinance has dwindled significantly, as most already have mortgage rates well below the 5% range.

Mortgage rates have continued their upward trajectory this week, currently hovering around the 7.5% mark, as reported by Mortgage News Daily.

Jason Howard
Jason Howard
Jason Howard is a licensed real estate agent with over a decade of experience helping individuals and families find their perfect homes. His blog posts break down the latest data, offering valuable insights for both buyers and sellers. Stay ahead of the real estate curve with Jason's expert analysis.

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