Last week, mortgage interest rates reached the highest level since early May, causing a decline in mortgage demand for the second consecutive week. According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume dropped by 5.2% compared to the previous week. This decrease can be attributed to the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increasing to 7.07% from 7.05%.
Applications to refinance a home loan fell by 7% from the previous week, although they were 5% higher than the same week one year ago. Mortgage rates are currently a quarter of a percentage point higher than they were at this time last year, leading some borrowers to refinance in order to access home equity. Additionally, mortgage applications to purchase a home dropped by 4% for the week and were 16% lower than the same week a year ago.
In addition to rising interest rates, homebuyers are also contending with increasing home prices and stiff competition, particularly in the lower end of the market. Government purchase volume saw a smaller decline, largely due to growth in VA applications. The reliance on first-time homebuyer demand is evident, with many first-time buyers utilizing government lending programs.
While mortgage rates initially dropped sharply at the end of last week, they started to decline again this week. A recent employment report showed lower-than-expected job openings in April, indicating potential challenges ahead. The market is bracing for upcoming data releases, which could either confirm or defy expectations. The risk of data surprising to the upside and causing a bounce back towards higher rates remains a concern for market participants.