Last week, mortgage interest rates climbed to their highest level since early May, leading to a 5.2% decline in total mortgage application volume. This marks the second consecutive week of decreasing mortgage demand, as reported by the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances also saw an increase, rising to 7.07% from 7.05%. Points rose to 0.65 from 0.63 for loans with a 20% down payment.
Applications to refinance home loans dropped by 7% from the previous week but were 5% higher compared to the same period last year. On the other hand, mortgage applications for home purchases decreased by 4% for the week and were 16% lower than a year ago. Homebuyers are not only dealing with higher interest rates but also facing rising home prices and intense competition, especially in the lower-priced segment of the market. The combination of these factors is making it challenging for buyers to enter the market.
While purchase volume declined overall, government purchase volume saw less of a decrease due to growth in VA applications. The market is relying on first-time homebuyer demand to sustain activity. Many first-time buyers utilize government lending programs to purchase their homes, highlighting the importance of these programs in facilitating homeownership. However, with rising interest rates and prices, the affordability of homes may become a concern for potential buyers.
Mortgage rates experienced a sharp drop at the end of last week, followed by further declines this week. Economic indicators, such as the employment report showing lower-than-expected job openings in April, are contributing to market uncertainty. The risk of data surprising to the upside and causing volatile movement in rates remains, highlighting the importance of closely monitoring economic developments for potential homebuyers and refinancers.
The recent increase in mortgage interest rates has had a notable impact on mortgage demand, refinance activity, and home purchases. Rising rates, coupled with other market factors, are creating challenges for prospective buyers and homeowners looking to refinance. Government purchase programs and first-time homebuyer demand are playing a significant role in sustaining market activity. However, market volatility and economic indicators pose risks to interest rate movements, emphasizing the need for caution and informed decision-making in the current housing market environment.