Mortgage demand takes a massive hit as interest rates cross back over 7%

Mortgage interest rates surged last week to the highest level since early December, and that hit mortgage demand hard. Total application volume plunged 10.6% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.06% from 6.87%, with points increasing to 0.66 from 0.65 (including the origination fee) for loans with a 20% down payment.

“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” said Mike Fratantoni, MBA’s chief economist in a release.

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. One year ago, the 30-year fixed rate was 6.62%. Refinance volume had been running higher than year-ago levels, even with rates higher this year, but the jump in rates last week clearly made a refinance not worth it for most borrowers.

Applications for a mortgage to purchase a home fell 10% for the week and were 13% lower than the same week one year ago. They sat at the lowest level since early November 2023.

“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 added.

With rates higher, the adjustable-rate mortgage (ARM) share of activity increased to 7.4% of total applications. ARMs offer lower interest rates but are considered more risky because they can adjust higher after a fixed period.

Mortgage rates jumped even higher Friday after a monthly government report on wholesale prices showed inflation is still persistent and hotter than most analysts had expected. They have not moved much to start this week.