The U.S. economy continues to display resilience as mortgage rates surge for the third consecutive week, reaching their highest point in nearly a year. This rise has led to decreased demand for mortgages, resulting in the lowest application volume since February.
Decreased Demand for Purchases and Refinancing
Both home purchases and refinancing have seen a decline in demand. Consequently, the Mortgage Bankers Association (MBA) reports a 0.8% drop in the overall market composite index, which measures mortgage application volume, from the previous week. Compared to the same time last year, this index currently stands at 193.0, significantly lower than its previous value of 273.3.
Impact on Home Buyers
The return of mortgage rates to their October high has significant implications for home buyers. Prospective buyers now face hundreds of dollars in additional borrowing costs, prompting many to reconsider their plans. As a result, the purchase index, which tracks mortgage applications for home purchases, has declined by 0.3% from the previous week.
Opportunities for Homeowners
On the other hand, homeowners looking to refinance can take advantage of the current rates. The refinance index experienced a modest 1.9% decrease.
Moreover, the average contract rate for a 30-year mortgage on homes sold for $726,200 or less rose to 7.16% for the week ending August 11, up from 7.09% the previous week. This rate represents the highest level since October 2022 and even surpasses rates seen in 2001.
Variation in Rates
The rate for jumbo loans, designed for homes sold at prices exceeding $726,200, also saw an increase. It rose to 7.11% from 7.04% the week before.
Conversely, the average rate for a 30-year mortgage backed by the Federal Housing Administration declined to 6.93% from 7.02%. Additionally, the 15-year mortgage rate rose to 6.57%, up from last week’s 6.51%.
These developments in mortgage rates indicate significant shifts in the housing market and offer both challenges and opportunities for buyers and homeowners alike.
# Mortgage Rates Drop to 6.2% The rate for adjustable-rate mortgages has fallen to 6.2%, down from last week’s 6.36%. Meanwhile, the share of adjustable-rate mortgages has risen to 7%, the highest level observed since April.
The Impact of a Booming Economy
It seems that positive news about the U.S. economy is not translating into good news for mortgage rates. This stems from concerns in the market that the U.S. economy shows no signs of slowing down and that the Federal Reserve will continue to raise rates to meet its inflation target. Consequently, rates have increased in the most recent week, resulting in hundreds of dollars in additional borrowing costs for the average homebuyer.
Exploring Alternatives
To combat these rising rates, some savvy buyers are turning to adjustable-rate mortgages. These mortgages offer a lower initial rate for a specified period, after which the rate adjusts to reflect the prevailing rate. Alternatively, other homebuyers are considering newly constructed homes, as many builders are offering incentives such as price cuts and mortgage rate buydowns to boost sales.
MBA’s Perspective
Joel Kan, deputy chief economist and vice president at the MBA, commented on the decrease in overall mortgage applications due to these higher rates. He stated, “Both purchase and refinance applications ended the week at their lowest levels since February 2023.”
Market Response
During early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) surpassed 4.2%.
