Mortgage Interest Rates Surge, Prompting a Drop in Mortgage Applications
Mortgage interest rates skyrocketed last week, reaching the highest level in over two decades for government-backed, low-down-payment loans. This surge had a significant impact on the demand for mortgages, as total application volume dropped by 3.1% compared to the previous week, according to a report from the Mortgage Bankers Association.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (with a limit of $726,200 or less) increased from 6.93% to 7.09% during this period. For loans with a 20% down payment, points on these mortgages increased from 0.68 to 0.70, including the origination fee. Additionally, the average rate for jumbo loans hit 7.04%.
FHA loans, which are favored by first-time and lower-income borrowers due to their low down payment options, saw rates surge to 7.02% — the highest level since 2002.
The increase in mortgage rates can be attributed to various factors, including rising Treasury yields and the downgrading of the U.S. government debt rating. Joel Kan, the Mortgage Bankers Association’s vice president and deputy chief economist, explained, “Treasury yields rates rose last week, and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the U.S. government debt rating.”
As a result of these soaring rates, applications for home purchases also declined significantly. In the past week, mortgage applications for purchasing a home dropped by 3%, marking a 27% decrease compared to the same time last year. The higher mortgage rates not only make it harder for prospective homebuyers to afford a new home but also dissuade existing homeowners from moving. Many homeowners, with mortgages locked in at rates between 3% and 4%, are hesitant to purchase another property when they would have to pay double the interest on a new mortgage.
Similarly, applications to refinance a home loan dropped by 4% in the past week, showing a 37% decline compared to one year ago.
Looking ahead, mortgage rates are expected to remain high, with a separate survey from Mortgage News Daily indicating rates over 7% at the start of this week. Experts suggest that mortgage rates could experience even more significant fluctuations on Thursday with the release of the monthly inflation data.
In conclusion, the recent surge in mortgage interest rates has had a substantial impact on the mortgage market. With rates reaching their highest levels in years, mortgage applications have declined for both home purchases and refinancing. Prospective buyers and homeowners alike are now faced with the challenge of navigating the increasingly expensive housing market.