Mortgage demand from homebuyers has dropped by 19% compared to the same period last year, driven by an abrupt increase in interest rates that is pushing potential buyers and current homeowners to the sidelines.
According to the Mortgage Bankers Association, total mortgage application volume fell 4.1% last week on a seasonally adjusted basis, with an additional adjustment made for the Labor Day holiday. The average contract interest rate for 30-year fixed-rate mortgages rose to 6.97% from 6.85%, while points increased to 0.72 from 0.67 for loans with a 20% down payment.
However, the weekly average masks a steeper recent climb. By last Thursday, rates had already surpassed 7%, and by Tuesday, the average hit 7.22%, according to Mortgage News Daily. This represents an increase of approximately 33 basis points over six business days, marking the most significant short-term jump since October 2024.
Joel Kan, MBA’s vice president and deputy chief economist, attributed the rise to ongoing market anxieties regarding spiking energy prices, persistent inflation, and uncertain future monetary policy, all of which have driven bond yields and mortgage rates upward.
Applications for refinancing, which are highly sensitive to rate fluctuations, dropped 9% for the week and were 65% lower than the same week a year ago. Kan noted that the current rate environment has eliminated much of the financial benefit for borrowers seeking to refinance, leading to declines across conventional, FHA, and VA loan categories.
Purchase applications also saw a decrease, falling 1% for the week and 19% year-over-year. Despite some gains in housing supply across much of the country, much of that inventory remains in the higher price segments. Potential buyers continue to face challenges from high home prices alongside the elevated borrowing costs.
The rate volatility is expected to persist as investors look ahead to the Federal Reserve’s upcoming meeting on Wednesday. Matthew Graham, chief operating officer at Mortgage News Daily, indicated that recent economic data and oil price implications are contributing to the uncertainty surrounding Fed policy.
I’m surprised no one mentioned the energy price angle more here. Spiking oil costs really are the elephant in the room driving all this inflation anxiety.
Buyers are priced out, sellers aren’t listing, and the Fed is confused. This sounds like the perfect storm for a housing market collapse soon.
Rates hitting 7.22% in just six days? That is terrifying volatility. How are anyone supposed to budget for a home purchase with this uncertainty?
Sixty-five percent drop in refinancing applications is staggering. It basically means the market for existing homeowners has frozen completely right now.