Despite Rising Interest Rates, Mortgage Demand Shows Growth Once More

Last week, there was an increase in demand for mortgages; however, the upward trend of interest rates may hinder the potential for a more significant surge in volume. Specifically, the average contract interest rate for conforming 30-year fixed-rate mortgages, which are loans of $726,200 or less, dropped from 6.71% to 6.48%.

Over the past three weeks, there has been a consistent increase in demand for mortgages, which was prompted by a decline in interest rates due to the recent bank failures. However, the current trend shows that interest rates are once again on the rise, and this could potentially have a negative impact on the number of mortgage applications being submitted.

The Mortgage Bankers Association’s seasonally adjusted index reported a 3% increase in total mortgage application volume last week compared to the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) fell from 6.71% to 6.48%, along with a decline in points from 0.79 to 0.66 (inclusive of the origination fee) for loans with a 20% down payment. Although the rate hit a one-month low, it remained significantly higher than the rate from the same week last year, which was around 4.5%.

“Treasury yields declined last week, driven by uncertainty over the health of the banking sector and worries about the broader impact on the economy,” said Joel Kan, MBA’s deputy chief economist. “However, mortgage rates have not dropped as much as Treasury rates due to increased MBS market volatility.”

The number of applications for home loan refinancing rose by 5% for the week, however, it remained 68% lower compared to the same week in the previous year. Refinancing demand is strongly influenced by fluctuations in interest rates on a weekly basis, but currently, only a small number of borrowers can take advantage of refinancing at the current higher interest rates.

According to recent data, mortgage applications for home purchases rose by 2% compared to the previous week, but were down 36% when compared to the same week last year. The current crop of homebuyers seems to be less swayed by weekly fluctuations in interest rates and more attuned to broader economic trends. With the banking industry under pressure, exorbitant home prices, and limited availability of properties on the market, consumer confidence has taken a hit.

Mortgage rates have risen at the beginning of this week, as concerns about the banking sector have eased in financial markets, according to a Mortgage News Daily index. The average rate was reported to be 6.75% on Tuesday. All attention is now focused on the Federal Reserve, which is anticipated to increase the federal funds rate by a quarter point, due to the pressure on the banking sector. Although mortgage rates do not directly follow the Fed’s decisions, they are influenced by the Fed’s outlook on the overall economy.