Rising Mortgage Rates Send Homebuyer and Refinance Demand Tumbling

Mortgage rates have made a sharp turn upward, leaving both prospective homebuyers and current homeowners to hit the brakes. Based on a recent index, total mortgage application volume fell 5.1%.

The average contract interest rate for 30-year fixed-rate mortgages, with loan balances up to $766,550, increased to 6.36% from 6.14%. This marks the highest rate since August, and while a 0.22% rise might seem modest, it has immediate consequences for potential borrowers. The small change led to a rise in points, from 0.61 to 0.62, for loans requiring a 20% down payment—adding another financial hurdle for buyers already grappling with high home prices.

Refinance applications, which had been surging over the past few months, took an even steeper hit. Refinancing activity dropped 9% in just one week. Despite this decline, refinancing activity is still 159% higher than the same period last year, when rates were 131 basis points higher.

For those eager to buy homes, or refinance their existing mortgages, this shift is a stark reminder of how volatile the housing market can be when interest rates begin to climb. With mortgage rates hovering near the highest levels in recent memory, it’s clear that demand for both purchases and refinancing is highly sensitive to even slight rate increases.

As the Fed continues to hint at further tightening to combat inflation, buyers and homeowners alike may have to adjust their expectations and budgets. It seems that for now, higher rates are cooling off what was an otherwise hot housing market, leaving many to wonder if the rates will fall again or if the upward trend is here to stay.