Mortgage demand drops after interest rates jump to the highest level since February

After shifting in a narrow range for several weeks, mortgage rates moved decidedly higher last week. That caused a 5.1% drop in mortgage applications compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, increased to 6.92% from 6.86%, with points rising to 0.69 from 0.68, including the origination fee, for loans with a 20% down payment. That rate was just 9 basis points lower the same week one year ago.

“Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,” said Mike Fratantoni, senior vice president and chief economist at the MBA.

Applications for a mortgage to buy a home, which had been rising for a few weeks, dropped 5% for the week and were 13% higher than the same week one year ago. Homebuyers are seeing much more listings on the market than they did even a few months ago, but higher interest rates, as well as increasing concern over the state of the economy and inflation, have chilled the usually busy spring season.

Applications to refinance a home loan also fell 5% for the week and were 27% higher than the same week one year ago. With rates now nearly the same as they were a year ago and even two years ago, there are fewer and fewer borrowers who can benefit from a refinance.