In Spite Of Rising Interest Rates, Mortgage Demand Recovers Slightly

The mortgage demand recovered slightly last week after it had dropped to its lowest level in 28 years the week before, despite rising interest rates.

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There was a 7.4% increase in the volume of mortgage applications last week, according to the seasonally adjusted index from the Mortgage Bankers Association.

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For loans with a 20% down payment, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.79% from 6.71%, with points increasing to 0.80 from 0.77. This is the highest level since November 2022 and is 270 basis points higher than it was a year ago.

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“Even with higher rates, there was a spike in applications last week, but that was in comparison to two weeks of declines that reached very low levels, including a holiday week,” according to Joel Kan, an MBA economist at BYU.

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The number of refinance applications for a home loan increased by 9% from week to week, but was 76% lower than the same week one year ago. The rate at which a refinance would be available last week was so low that barely 200,000 borrowers would be able to save money each month from it, compared with well over 2 million borrowers who could have benefited at this rate a year ago, according to Black Knight, a mortgage data and analytics company.

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Home purchase mortgage applications increased 7% for the week and were 42% lower than a year ago. Inventory is higher than a year ago, but new listings are still low, indicating that what's for sale isn't selling quickly.

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As the market gets ready for the traditionally busy spring season, it is possible that the jump in demand is only the beginning. However, the percentage of adjustable-rate mortgage applications rose last week, suggesting that more buyers are trying to stretch their budgets to afford today's still-expensive housing market. There is a tradeoff between lower interest rates and a higher risk when it comes to ARMs.

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According to a separate survey by Mortgage News Daily, mortgage rates have increased even further, crossing over 7% in some regions. The Federal Reserve's Chairman, Jerome Powell, told lawmakers on Capitol Hill on Tuesday that he expects rate hikes to accelerate again in the near future. This spooked investors and sent bond yields higher as a result. There is a loose correlation between mortgage rates and the yield on the 10-year Treasury note.

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“Markets read enough into Fed Chair Powell's remarks to change expectations in a meaningful way, even though he said nothing remarkably new or different,” said Matthew Graham, chief operating officer of Mortgage News Daily.