Mortgage rates shot higher last week, as stronger economic data stoked more fear that the Federal Reserve will not lower interest rates anytime soon. In turn, mortgage demand dropped to the lowest level since the end of February.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.91% from 6.69%, with points rising to 0.83 from 0.66 (including the origination fee) for loans with a 20% down payment. That was the weekly average according to the Mortgage Bankers Association, but other daily reads saw the rate head over 7%.
As a result, mortgage applications to refinance a home loan, which are most sensitive to rate changes, decreased by 7% last week from the previous week, seasonally adjusted. Application volume was 45% lower than the same week one year ago.
Applications for a mortgage to purchase a home dropped 3% for the week and were 31% lower than the same week a year ago.
“Application volumes for both purchase and refinance loans decreased last week due to these higher rates,” said Michael Fratantoni, MBA’s chief economist, in a release. “While refinance demand is almost entirely driven by the level of rates, purchase volume continues to be constrained by the lack of homes on the market.”
With home prices starting to regain steam, mortgage rates higher and inventory levels still well below normal, potential homebuyers are getting hit from all sides on affordability. The higher rates are, the less inclined current owners will be to list their homes for sale. The vast majority of homeowners today have mortgages with interest rates below 5%.
The direction of mortgage rates depends mostly on new reads on the economy. The next one comes Friday, with the release of the government’s monthly employment report.