Mortgage Demand Drops 2.9% as Rates Exceed 6.8%

Mortgage applications experienced a 2.9% decline from the previous week, concluding on July 31, according to the Mortgage Bankers Association (MBA)'s weekly survey. This decrease was observed on both a seasonally adjusted and unadjusted basis, with the unadjusted index showing a 3% drop compared to the prior week. The refinance index saw a 2% decrease week-over-week and was 9% lower than the same period in the previous year, indicating a sustained slowdown in refinancing activity. Concurrently, the seasonally adjusted purchase index fell by 4% from the week prior. The unadjusted purchase index also decreased by 4% week-over-week and was 3% lower than the corresponding week in the prior year, signaling a weakening in the housing market's buying segment.

Mike Fratantoni, MBA's senior vice president and chief economist, attributed the decline in application volume to rising longer-term rates following the July Federal Open Market Committee (FOMC) meeting. The 30-year fixed mortgage rate reached its highest point in over a year, climbing to 6.81%. Fratantoni stated that these elevated mortgage rates have diminished overall demand for both refinance and purchase loans, with current application volumes trailing behind last year's pace. This suggests that affordability challenges are becoming more pronounced for potential homebuyers and those looking to refinance existing mortgages.

Despite the overall decrease in demand, the refinance share of mortgage activity saw a slight increase, rising to 39.9% of total applications from 39.5% in the preceding week. Conversely, the adjustable-rate mortgage (ARM) share of activity decreased to 7.9% of total applications. Examining loan product types, the Federal Housing Administration (FHA) share of applications rose to 17.3%, up from 16.9% a week earlier. In contrast, the U.S. Department of Veterans Affairs (VA) share declined to 12.3%, down from 12.6%. The U.S. Department of Agriculture (USDA) share saw a marginal increase to 0.5%, up from 0.4%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, defined as $832,750 or less, increased to 6.81% from 6.76%. For jumbo loan balances exceeding $832,750, the average rate also rose to 6.72% from 6.70%. Rates for FHA-backed 30-year fixed mortgages increased by 2 basis points to 6.43%. In contrast, rates for 15-year fixed mortgages decreased by 2 basis points to 6.13%. The average rate for 5/1 ARMs saw an increase of 5 basis points, reaching a level that was not fully specified in the provided data, but indicating a general upward trend in borrowing costs across various mortgage products.