The recent increase in mortgage rates for the third consecutive week has led to a decrease in mortgage application demand. According to the Mortgage Bankers Association, application demand dropped by 2.7% compared to the previous week. This decline is a concerning trend for potential homebuyers who may be deterred by higher interest rates.
Applications to refinance a home loan, which are particularly sensitive to fluctuations in interest rates, fell by 6% for the week. However, when compared to the same week one year ago, refinance applications were still 3% higher. The decline in refinance applications may be attributed to the higher average contract interest rate for 30-year fixed-rate mortgages.
Applications for mortgages to purchase a home also experienced a decline, falling by 1% for the week. In comparison to the same week one year ago, purchase applications were 15% lower. The combination of rising home prices and increasing interest rates is impacting potential buyers’ purchasing power, making it more challenging for individuals to enter the housing market.
Joel Kan, the Mortgage Bankers Association’s deputy chief economist, noted that purchase applications declined as home buyers delayed their purchase decisions due to strained affordability and low supply. This double whammy of factors is contributing to the slowdown in the housing market, as buyers face challenges in finding affordable homes amidst rising interest rates.
As affordability becomes more of a concern, the share of adjustable-rate mortgages (ARMs) in mortgage applications rose to 7.6% last week. ARMs offer lower rates initially and can be fixed for a specified period, providing buyers with some flexibility. However, they are considered riskier due to potential rate fluctuations after the fixed period ends.
While mortgage rates have shown a slight ease in the current week, there hasn’t been significant economic data to influence them. Homebuyers are closely monitoring the fluctuations in interest rates, as they play a crucial role in determining housing affordability and overall market dynamics.
The recent increase in mortgage rates has had a significant impact on homebuyers, resulting in lower mortgage application demand, especially for refinancing and home purchase. As affordability concerns and limited housing supply persist, buyers are facing challenges in making purchasing decisions amidst rising interest rates. The shift towards adjustable-rate mortgages highlights the need for flexibility in a changing market environment.