Impact of Rising Mortgage Rates on Mortgage Demand

The real estate market faced a setback during the month of May when mortgage rates started to rise after a brief pullback. This sudden increase in rates had an immediate impact on the mortgage demand that had been strengthening over the past few weeks.

Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances saw an increase to 7.05% from 7.01%. This rise in rates, although seemingly small, had a significant effect on the market. Rates had previously fallen to the high 6% range before shooting up in the second half of the week, resulting in a 5.7% decrease in total mortgage application volume compared to the previous week.

Both purchase and refinance applications experienced a decline, leading to an overall decrease in mortgage activity to the lowest level since early March. Borrowers were sensitive to even small increases in rates, affecting the refinance market, and causing purchase applications to remain below last year’s levels. Refinance demand, which had been showing signs of recovery, dropped by 14% for the week but was still 12% higher than the same week one year ago. Applications for home purchase also fell by 1% for the week and were down by 10% from the same period last year.

Joel Kan, an economist from the Mortgage Bankers Association, highlighted the challenges faced by buyers in the current market. Limited availability of existing homes for sale has made it difficult for buyers to find listings within their price range that meet their needs. This shortage of inventory has contributed to the decline in mortgage applications for home purchases.

The trend of rising mortgage rates continued into the following week as well, with rates jumping by 12 basis points on Tuesday alone, as reported by Mortgage News Daily. This consistent increase in rates is likely to further impact mortgage demand in the coming weeks.

The recent surge in mortgage rates has had a notable effect on the real estate market, leading to a decrease in mortgage applications and overall activity. Borrowers are reacting to the rise in rates by being more cautious in their decision-making process. As the market continues to adjust to the changing interest rate environment, it will be interesting to see how both buyers and sellers navigate these challenging conditions.