Impact of Rising Mortgage Interest Rates on Homebuyers

Recent data shows that mortgage interest rates have increased for the first time in three weeks. This rise has resulted in a 1.6% decrease in total mortgage application volume. According to the Mortgage Bankers Association, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances has risen to 6.97%.

The increase in mortgage rates is attributed to incoming data showing that inflation is higher than expected. This has raised concerns about the Federal Reserve’s ability to reduce the fed funds rate this year. Joel Kan, vice president and deputy chief economist at the MBA, mentioned that the rise in rates is due to concerns about the timing and extent of rate reductions.

Refinance applications have decreased by 3% compared to the previous week and are also lower than the same period last year. Similarly, applications for purchasing a home have fallen by 1% and are 14% lower than a year ago. The demand for home purchases is less affected by fluctuations in interest rates, as it is also influenced by high prices and limited supply.

Due to the combination of low supply and high prices, the average loan size for purchase applications has increased to its highest level since May 2022. This indicates that homebuyers are borrowing larger amounts to afford homes amidst rising prices and limited inventory.

Mortgage rates are currently hovering around the low 7% range, nearing the ceiling set three weeks ago. The upcoming Federal Reserve announcement on interest rates and the subsequent press conference with Fed Chair Jerome Powell could determine whether the ceiling will hold or be surpassed. The uncertainty surrounding the Fed’s decision may result in significant fluctuations in mortgage rates in the near future.

The recent increase in mortgage interest rates has had a notable impact on mortgage applications, particularly for refinance and home purchase loans. Homebuyers are faced with higher borrowing costs due to rising rates, low supply, and inflated prices. The upcoming Federal Reserve announcement will provide clarity on the direction of interest rates, which will ultimately influence the housing market and the affordability of homes for buyers.