Mortgage Demand Dips as Interest Rates Reach Highest Level Since February

Mortgage demand took a significant hit last week as interest rates surged to their highest level in nearly three months, shaking up the housing market at the start of the typically busy spring season.

According to the Mortgage Bankers Association (MBA), total mortgage application volume dropped 5.1% week-over-week, driven by declines in both home purchase and refinance activity. The downturn followed a noticeable increase in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $806,500), which jumped to 6.92% from 6.86%. This marks the highest level since February and puts current rates just 9 basis points shy of where they stood at the same time last year.

“Investors are increasingly worried about persistent inflation, ballooning federal deficits, and growing national debt all of which are contributing to higher mortgage rates,” said Mike Fratantoni, MBA’s chief economist. “This latest spike in borrowing costs is clearly taking a toll on housing demand.”

Applications for home purchase loans, which had shown signs of recovery in recent weeks, dropped 5% during the period. Despite the dip, purchase activity still stands 13% above levels seen one year ago. Buyers are navigating a market that’s offering more inventory than in recent memory, yet affordability remains strained by rising rates and economic uncertainty.

Refinancing activity, which has been volatile throughout the year, also saw a 5% week-over-week decline. Although refinance volume is still up 27% from a year ago, that growth is slowing as fewer homeowners stand to benefit from a rate swap. With current mortgage rates nearly matching those from the past two years, many homeowners who could have refinanced have already done so.

The combination of elevated rates and cautious consumer sentiment is casting a shadow over what is typically a peak period for the housing market. Unless there is a significant shift in inflation trends or monetary policy, the spring home-buying season may end up cooler than usual.

For more information about real estate investments, reach out to Nadlan Capital Group for expert guidance.