Mortgage Applications Decline as Rates Hit 6.85%

Mortgage applications experienced another week-over-week decline, as interest rates on a 30-year fixed mortgage reached 6.85% for the week ending March 8, 2024. This figure represents a notable increase, contributing to the overall slowdown in the housing market. The Mortgage Bankers Association (MBA) reported that the overall seasonally adjusted mortgage application volume decreased by 5.7% compared to the previous week. This dip is primarily driven by a significant drop in refinancing activity.

Refinance applications specifically saw a substantial fall of 6% from the week prior. This decline in refinancing is a direct consequence of the elevated interest rate environment. When rates rise, fewer homeowners find it financially advantageous to refinance their existing mortgages, as the potential savings on interest payments diminish. Consequently, the refinance index also decreased by 6% from the previous week, and was 29% lower than the same week in 2023. The MBA's Share Index for refinancing stood at 31.1%, down from 31.7% the previous week.

In contrast to the general decline, the share of adjustable-rate mortgages (ARMs) saw an uptick. The seasonally adjusted ARM share of total mortgage application activity increased to 8.5% from 7.9% in the prior week. This rise suggests that some borrowers are opting for ARMs as a strategy to secure a lower initial interest rate compared to fixed-rate mortgages, despite the inherent risk of future rate adjustments. The MBA noted that the ARM share was 12.2% for the same week last year, indicating a lower proportion of ARMs being utilized compared to the previous year.

Purchase applications, which are a key indicator of housing market activity, also experienced a decrease. The seasonally adjusted purchase index fell by 5% compared to the week before. This slowdown in purchase applications indicates a cooling demand for home buying, likely influenced by the combination of higher mortgage rates and persistent housing inventory challenges. The purchase index was 15% lower than the same week in 2023. Despite the overall dip, the average contract interest rate for a 30-year fixed-rate mortgage with a loan-to-value ratio of 75% or less was 6.85%, up from 6.77% the previous week. For FHA loans, the average rate was 6.56%, and for VA loans, it was 6.51%. The MBA's data underscores a challenging period for the mortgage market, characterized by rising rates and subdued application volumes across both refinancing and purchase segments.