Mortgage Applications Decline Amid Fed Rate Hikes

Mortgage applications experienced a decline last week, continuing a downward trend attributed to a recent interest rate hike by the Federal Reserve. For the week concluding September 18, the Mortgage Bankers Association's (MBA) Market Composite Index, which tracks total mortgage loan application volume, saw a seasonally adjusted decrease of 1.5% compared to the preceding week. This downturn particularly affected the purchase market, with the seasonally adjusted Purchase Index, measuring applications for single-family homes, falling by 1%. Year-over-year, purchase applications are down by 11%. The refinancing segment also contracted, with the refinancing index declining 3% for the week and standing 62% lower than the same period in the previous year. Mike Fratantoni, the MBA's senior vice president and chief economist, noted that the current pace of refinancing has reached its slowest point since February 2025. This economic climate follows the Federal Reserve's unanimous decision last Wednesday to increase interest rates by a quarter-percentage point, moving the benchmark rate from 3.75% to 4%. Federal Reserve Chairman Kevin Warsh stated that the rate hike was a necessary measure to combat inflation, which has been "too high and has been for too long," emphasizing the committee's "resolve to achieve price stability on a timelier basis." In parallel with the Fed's actions, mortgage rates have escalated. Last week, the average rate for a 30-year mortgage climbed to 6.95%, as reported by Freddie Mac, an increase from 6.76% the week prior and significantly higher than the 6.26% recorded a year ago. Fratantoni observed a shift in borrower behavior, with an increasing number opting for adjustable-rate mortgages (ARMs) as fixed rates have risen. The share of ARM applications rose to 9.8%. Concurrently, the proportion of FHA loan applications decreased slightly to 16.7% from 16.9% the previous week. The VA share of total applications also saw a reduction, falling to 12% from 12.4%. In contrast, the USDA share of total applications experienced a modest increase, moving from 0.4% to 0.6% in the same week. Mortgage rates are influenced by a complex interplay of economic factors, including the yield on the 10-year Treasury note, which is closely linked to the 30-year mortgage rate, as well as individual borrower qualifications such as credit score and loan term.