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The housing market faces a significant setback as mortgage interest rates soar to their highest levels since early December, prompting a sharp decline in mortgage demand. According to the Mortgage Bankers Association’s seasonally adjusted index, total application volume plummeted by 10.6% compared to the previous week, reflecting the adverse impact of rising rates on borrower activity.
The average contract interest rate for 30-year fixed-rate mortgages surged to 7.06%, up from 6.87%, with points increasing to 0.66 from 0.65 for loans with a 20% down payment. Mike Fratantoni, Chief Economist at the MBA, attributed the rate hike to news of increased inflation in January, dashing hopes of an imminent rate cut and fueling concerns about affordability in an already supply-constrained market.
Refinance applications bore the brunt of the rate surge, dropping by 11% compared to the previous week and registering a mere 0.1% increase from the same period last year. Similarly, applications for home purchase loans declined by 10% for the week and were 13% lower year-over-year, marking the lowest level since early November 2023. Fratantoni highlighted the sensitivity of potential homebuyers to rate fluctuations, citing strained affordability exacerbated by higher rates and escalating home values.
As rates climbed, the share of adjustable-rate mortgages (ARMs) in total applications increased to 7.4%, reflecting borrowers’ pursuit of lower interest rates despite the inherent risks associated with adjustable terms.
The surge in mortgage rates was further compounded by a monthly government report revealing persistent inflationary pressures, exacerbating concerns about affordability and dampening prospects for prospective homebuyers. Despite minimal movement at the start of the week, the prevailing uncertainty surrounding interest rates underscores the challenges facing the housing market in the coming months.
As stakeholders navigate the evolving landscape, attention turns to policymakers and industry players to explore strategies for mitigating the impact of rising rates on housing affordability. With affordability increasingly becoming a critical issue, concerted efforts are needed to address supply constraints and explore innovative solutions to ensure sustainable access to homeownership for all segments of the population.