Mortgage demand falls again as interest rates soar past 7%

A key measure of home-purchase applications fell again last week as mortgage rates rose to the highest level in five months.

The Mortgage Bankers Association’s (MBA) index of mortgage applications slid 2.7% for the week ended April 19, according to new data published Wednesday. 

The data also showed that the average rate on the popular 30-year loan rose to 7.24% last week. While that is down from a peak of 8% in October, it marks the highest level for interest rates since November.

“Mortgage rates continued to move higher last week, reaching their highest levels since late 2023 and putting a damper on applications activity,” said Mike Fratantoni, MBA’s chief economist.

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Housing demand has ground to a halt as rates move higher. Applications for a mortgage to purchase a home dropped 1% from the previous week. Application volume is down 15% compared with the same time last year.

Demand for refinancing also fell last week, tumbling 6% from the previous week, according to the survey. Compared with the same time last year, refinance applications are up just 3%.

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The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve’s aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation and slow the economy. 

Economists predict that mortgage rates will remain elevated for the first half of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic. 

On top of that, investors are growing skeptical about the odds of a Fed rate hike this year given the string of hotter-than-expected inflation reports at the beginning of the year.

Most economists now expect the cuts to begin in September amid signs that inflation remains abnormally high.

Higher mortgage rates are not only dampening consumer demand, they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.

Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report.