Mortgage demand took a massive hit last week, with application volume down a whopping 10.6% compared with the previous week as interest rates surged over 7% — their highest level since early December.
According to the Mortgage Bankers Association’s seasonally adjusted index for the week ended Feb. 16, the average contract interest rate for a 30-year fixed-rate mortgage with a $766,550 loan limit was 7.06% — up from 6.87% the week prior.
Borrowing rates on loans greater than $766,550 advanced from 7% to 7.16%, according to the MBA’s index, which was earlier reported on by CNBC.
As a result, applications for mortgages to purchase a new home fell more than 10% — roughly 13% lower than the same week last year and the lowest level since early November 2023, according to CNBC.
For reference, in the year-ago period, the 30-year fixed rate was 6.62%.
As recently as December, the figure dipped below 7% — welcome news to prospective homebuyers who have largely been held back by higher borrowing costs and heightened competition for relatively few homes for sale.
MBA’s chief economist Mike Fratantoni said that “mortgage rates moved back above 7% last week following news that inflation picked up in January, dimming hopes of a near-term rate cut.”
According to the latest Consumer Price Index — which tracks changes in the costs of everyday goods and services — inflation rose a hotter-than-expected 3.1% in January.
Though Federal Reserve Chair Jerome Powell had already said ahead of the report that the committee likely won’t “reach a level of confidence by the time of the March meeting” to lower interest rates from their current 22-year high, the recent inflation data further stoked doubts that the Fed would slash rates anytime soon.
Meanwhile, applications to refinance a home loan dropped 11% last week, compared with the previous week, and were just 0.1% higher than the same week a year ago, the MBA found.
Though refinance volume had been running higher than year-ago levels, a surge in rates last week made refinancing not worth it for most borrowers, CNBC reported.
“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Fratantoni said.
With elevated rates, the share of adjustable-rate mortgages (ARMs) — which tend to offer lower interest rates for a fixed period of time before adjusting higher — increased to 7.4% of total applications, the MBA found.
“Million Dollar Listing Miami” realtor Sam DeBianchi told Fox’s “Mornings with Maria” on Monday that prospective homebuyers should reconsider closing a deal as this isn’t the market for buying a dream home.
“Because rates are so high or higher in general, people are trying to add all of the bells and whistles into their purchase, naturally, because they want to roll it all in. They want to come out of pocket too much,” DeBianchi said.
“I think, as a buyer, you need to maybe put your expectations [aside],” she continued, “Don’t buy the American dream home right now. But, think about that American dream home in the future.”
DeBianchi argued that potentially higher rates will follow residents into the hottest housing markets of 2024 which, according to Zillow, are places like Buffalo, NY; Cincinnati, Columbus, and Cleveland, Ohio; Atlanta, Ga.; and Orlando and Tampa, Fla.
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