Higher interest rates reduced mortgage demand by more than 40% compared to last year

Higher interest rates are crushing the mortgage market, as few homeowners can now benefit from refinancing and so more potential homebuyers are priced in.

Total volume of mortgage applications fell another 6% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Trading volume is down 41% from the same week a year ago.

The average contract interest rate for 30-year fixed rate mortgages with matching loan balances ($647,200 or less) increased to 4.90% from 4.80%, with points down to 0.53 from 0.56 (including origination fees) for loans of 20%. low paying. That rate was just 3.36% one year ago. This is the fourth consecutive week of increases.

Home loan refinancing requests, which have been declining steadily for several months, are down another 10% from week to week. Refinancing demand was 62% lower than the same week a year ago.

“The volume of mortgage applications continues to fall due to the rapid rise in mortgage rates, as financial markets anticipate tighter monetary policy in the coming months,” said Joel Kahn, MBA economist. “As higher rates reduce the incentive to refinance, application volume is down to its lowest level since spring 2019.”

The share of refinancing for all applications fell to 38.8% from 51% a year ago.

Mortgage applications to buy a home fell 3% during the week and were 9% lower than the same week a year ago. A strong job market with continued wage growth is keeping the demand for housing high, but the supply of homes for sale is still very weak. Bidding wars tend to be the rule rather than the exception. Affordability is rapidly declining, and novice buyers are sidelined.

“The high average volume of purchase loans, and a sharp 8% decline in FHA purchase orders, indicate that first-time buyers are disproportionately affected by supply and affordability challenges,” Kahn added.

The decline in the mortgage business has caused layoffs at companies like Movement Mortgage and Better.com. Mortgage companies were in huge hiring periods in the first year of covid pandemicwhere interest rates set more than ten record lows and demand for refinancing and purchase increased.