A Third Week of Rising Rates
Mortgage rates are continuing on an upward trajectory, increasing for the third consecutive week and reaching levels that match a 22-year high. This surge in rates has been accompanied by a significant drop in mortgage applications. As per the latest data from the Mortgage Banker’s Association, the total mortgage application volume is now 29% lower than it was during the same week in the previous year.
The Details: A Closer Look at Rates
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (defined as $726,200 or less) has risen to 7.16%, up from the previous 7.09%. Simultaneously, the points required have decreased slightly to 0.68 from 0.70 (which includes the origination fee), provided the loan is initiated with a 20% down payment. This represents not only the third straight weekly increase, but also a peak level that was last seen in October 2022 and before that, in 2001.
Influencing Factors: Treasury Rates and Inflation
Joel Kan, an economist with the MBA, explained in a press release that this pattern of rising rates is due to a combination of factors. “Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation,” Kan noted.
Demand for Mortgages: A Mixed Picture
While overall mortgage demand is slumping, the story isn’t universally grim. Mortgage applications from homebuyers remained largely unchanged week to week but were down by 26% compared to the same week one year ago. In contrast, applications for adjustable-rate mortgages (ARMs) saw a minor uptick, likely because ARMs typically offer slightly lower rates—an appealing prospect for buyers in search of relief from high rates.
Refinance Applications Take a Hit
Applications to refinance existing home loans didn’t fare well, falling 2% for the week. They are now 35% lower than the same week one year ago. For context, last year the 30-year fixed rate stood at 5.45%, whereas two years ago it was in the more attractive 3% range. With current rates climbing, few borrowers stand to benefit from refinancing at this juncture.
A Silver Lining: New Home Purchases
Despite the overall drop in mortgage applications, there is a bright spot in the market for newly built homes. Applications for mortgages to purchase a newly constructed home surged by 35.5% in July year over year, as per a separate report from the MBA. The Federal Housing Administration (FHA) share of those applications reached its highest level since May 2020 and has been trending upward for four of the last five months. These FHA loans, known for their low down payment options, are particularly attractive to first-time homebuyers.
“This increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions,” Kan added.
Current Status: Mortgage Rates Continue to Climb
As of the latest update, the climb in mortgage rates shows no sign of slowing. On Tuesday, the average rate on a 30-year fixed mortgage hit 7.26%, as reported by Mortgage News Daily. This rate is the highest observed since last November, further complicating the scenario for prospective homeowners and current mortgage holders alike.
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