Applications Tumble As Rates Soar

Mortgage applications tanked last week, raising concerns over the market’s future.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell by 4.2%, supercharging after the week prior’s 0.8% decline.

The average interest rate for 30-year fixed loans rose from 7.16% to 7.31%, pushing homeownership farther out of reach for many Americans. This is the fourth straight week of increases and the highest level since December 2000.

“Applications for home purchase mortgages dropped to their lowest level since April 1995, as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power. Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Adjusted purchase applications fell by 5%, while the unadjusted index dipped 7% from the week before and was 30% lower YOY.

ARM applications spiked by 4% to their highest level in five months as homebuyers prioritize affordable monthly payments over stability.

A similar story is playing out with FHA loans. The FHA share has seen a boost in four of the last five months as buyers seek out ways around the affordability crisis. Its share of total applications rose 0.5% to 14.3%.

Refinances gained market share due to shrinking purchase demand but remained subdued, down by 3% and 35% lower than the same time last year. They currently make up 29.5% of total applications. In the past decade, refis averaged 58% of total activity.

The VA’s share fell to 11.6%, while the USDA’s share ticked up to 0.5%.

Mortgage rates may continue to climb.

Daily rates hit 7.49% this week, suggesting next week’s averages might be even higher.

At the same time, more hikes may be coming from the Central Bank, which discussed the possibility at length at July’s FOMC meeting. A majority of attendees “continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” according to the meeting’s minutes.

Last month, Chairman Jerome Powell announced the key interest rate would be lifted to 5.25% to 5.5% — the upper figure representing a level not seen since 2001, according to the Associated Press. Powell said that they don’t expect to reach their goal of 2% inflation until 2025, and they do not intend to cut rates until next year.

“The Fed’s rate hikes attempt to combat inflation, increasing mortgage interest rates. While the Fed doesn’t determine the mortgage interest rates, the recent one-quarter rate increase can affect prospective borrowers,” Allyson Waddell, agent success manager at, told The Mortgage Note.

Mortgage interest rates include multiple factors and mortgage lenders raise them to compensate for their increased cost of borrowing money, she added. That drives up prices for homebuyers.

“In an already unaffordable market with low inventory, any increase in mortgage interest rates decreases a potential buyer’s spending power,” Waddell said.

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