Following a temporary decline in May, mortgage rates began to climb again last week. This increase had an immediate effect on the previously growing mortgage demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose to 7.05% from 7.01%, with points increasing to 0.63 from 0.60 (including the origination fee) for loans with a 20% down payment.
As a result of the hike in mortgage rates, total mortgage application volume dropped by 5.7% last week compared to the previous week. This decline was felt across both purchase and refinance applications, leading to an overall activity level that was the lowest since early March. Borrowers appeared to be sensitive to even small rate increases, impacting the refinance market and keeping purchase applications below the levels seen last year.
Refinance Demand Plunge
While refinance demand had been showing signs of a slight recovery, it plunged by 14% for the week due to the surge in mortgage rates. However, it was still 12% higher compared to the same week one year ago. Applications for mortgage purchases also saw a decline, dropping by 1% for the week and showing a 10% decrease compared to the same period last year.
One of the factors contributing to the decrease in purchase applications is the limited availability of existing homes for sale. Many potential buyers are struggling to find listings within their budget that meet their requirements. This shortage of inventory is making it increasingly difficult for buyers to make a purchase, further hampering the housing market.
Mortgage rates continued to climb at the beginning of the week, with a sharp increase of 12 basis points observed on Tuesday alone. This rapid rise in rates further adds to the challenges faced by both prospective buyers and existing homeowners looking to refinance their mortgages. The unpredictability of rate fluctuations makes it essential for borrowers to closely monitor market trends and act quickly to secure favorable rates.
The recent surge in mortgage rates has had a notable impact on mortgage demand, causing a decline in both refinance and purchase applications. The challenges faced by buyers in finding suitable properties within their budget, coupled with the fluctuating rates, highlight the need for borrowers to carefully assess their options and make informed decisions regarding their mortgage choices.
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