7% interest rates hit weekly mortgage demand hard

Higher mortgage rates continue to hit demand from both current homeowners and potential homebuyers.

Total mortgage application volume dropped 5.6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made to account for the Presidents Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.04% from 7.06%, with points increasing to 0.67 from 0.66 (including the origination fee) for loans with a 20% down payment. The rate was about a quarter percentage point higher than it was one year ago.

As a result, applications to refinance a home loan were 7% lower than the previous week and were 1% lower than the same week one year ago.

“Higher rates in recent weeks have stalled activity, and last week it dropped more for those seeking FHA and VA refinances,” said Mike Fratantoni, MBA’s chief economist, in a release.

FHA and VA loans are generally used by lower-income borrowers because they have lower down payment requirements.

Applications for a mortgage to purchase a home dropped 5% for the week and were 12% lower than the same week one year ago.

Fratantoni noted, however, that mortgage demand from buyers looking at newly built homes jumped 19% year over year in January.

“This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don’t help,” he added. Rates were in the 6% range for all of January.

Mortgage rates moved higher again to start this week, according to a separate survey from Mortgage News Daily. The 30-year fixed is now matching the highest level since early December 2023.

“There were no interesting or obvious catalysts for the move, nor would we expect there to be when it comes to the level of volatility seen on almost any day of the past 2 weeks,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.