Mortgage demand fell sharply last week as borrowing costs climbed to levels not seen since mid-2023, according to data released by the Mortgage Bankers Association. Total mortgage application volume dropped 2.9% week-over-week on a seasonally adjusted basis, and marked the first time in five months that volume fell below the same week one year ago—down 5% annually.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less increased to 6.81% from 6.76%, with points decreasing to 0.65 from 0.69, including the origination fee, for loans with a 20% down payment. The uptick follows the Federal Open Market Committee's July meeting, which pushed longer-term rates higher across the Treasury curve.
Mike Fratantoni, the Mortgage Bankers Association's chief economist and senior vice president of research and business development, said in a release that mortgage rates reached their highest level in more than a year in the wake of the July FOMC meeting. He noted that application volume for both refinance and purchase loans declined for the week and are now running behind last year's pace, indicating that higher mortgage rates have weakened overall demand.
Refinance applications fell 2% for the week and were 9% lower than the same week one year ago. The shrinking pool of borrowers who can benefit from refinancing reflects the narrow rate differential available in the current environment. Industry guidelines typically suggest that homeowners need to reduce their existing rate by at least three-quarters of a percentage point to justify the transaction costs of refinancing, a threshold that fewer borrowers can now meet.
Applications for a mortgage to purchase a home dropped 4% for the week and were 3% lower than the same week one year ago. The decline comes despite an increase in housing inventory and longer days-on-market for listed properties, suggesting that elevated rates are offsetting any negotiating leverage buyers might gain from improved supply conditions.
Prices have remained stubbornly high even as inventory has grown, and while buyers do have more negotiating power in certain markets, the higher rates are offsetting any savings they might be able to get on price. The dynamic illustrates the sensitivity of housing demand to financing costs, particularly in a market where affordability has already been stretched by years of price appreciation.
Mortgage rates did begin to slide at the start of this week, according to a separate survey from Mortgage News Daily. A pullback in Iran war rhetoric caused oil prices to slide, and mortgage rates followed first timidly on Monday, then more substantially on Tuesday. Matthew Graham, chief operating officer at Mortgage News Daily, wrote that additional gains in the bond market, courtesy of Iran-related headlines and lower oil prices, offered enough reassurance for mortgage lenders to get more aggressive in terms of keeping pace with the market.
Graham noted that the net effect is an average 30-year fixed rate that is now down to the lowest levels in just over two weeks. The intraweek volatility underscores how quickly financing conditions can shift in response to geopolitical developments and commodity price movements, creating a challenge for both buyers attempting to time purchases and lenders managing pipeline risk in an uncertain rate environment.