A sign points to an open house in Alhambra, California on May 4, 2022.
Frederick J. Brown | AFP | Getty Images
The highest mortgage interest rates in more than 20 years coincided with one of the deadliest hurricanes on record in the United States, both contributing to a sharp drop in mortgage demand.
Total mortgage applications fell 14.2% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index, to the lowest level since 1997.
The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.75% from 6.52%, with points decreasing to 0.95 from 1.15 (including the origination fee) for loans with a 20% down payment.
“The current interest rate has doubled over the past year and has increased by 130 basis points in the past seven weeks alone,” noted Joel Kahn, an MBA economist.
Refinancing volume, which is most sensitive to weekly interest rate moves, fell 18% for the week and was 86% lower than the same week a year ago. The share of refinancing mortgage activity fell to 29% of total applications from 30.2% the previous week.
Home mortgage applications fell 13% for the week and were down 37% on the year.
“There was also the impact of Hurricane Ian’s arrival in Florida last week, causing widespread closures and evacuations. Applications in Florida were down 31%, compared to 14% overall, on a non-seasonally adjusted basis,” Kahn added.
With higher interest rates making an already expensive housing market even more expensive, homebuyers have turned more to variable rate mortgages that offer a lower interest rate. That share of activity rose to 11.8 percent from 8.5 percent a month ago and about 3 percent earlier this year, when mortgage rates were less than half what they are now.
Mortgage rates eased slightly this week, according to another survey by Mortgage News Daily, but all bets are off at the end of the week when the all-important monthly employment report is released. Depending on how investors view the results — and how the Federal Reserve might react to those results — mortgage rates could move decisively in either direction.