Mortgage demand increases again, but interest rates are rising

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Mortgage demand increases again, but interest rates are rising

A for sale sign displayed in front of a home on February 22, 2023 in Miami, Florida.

Joe Raedle | Getty Images

Mortgage demand has now risen for three straight weeks as interest rates have fallen in response to recent bank failures.

But interest rates are rising again, and that could dampen the volume of applications.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage applications rose 3% last week compared to the previous week.

The average contract rate for 30-year fixed-rate mortgages with matching loan balances ($726,200 or less) fell from 6.71% to 6.48%, with points down from 0.79 to 0.66 (including the setup fee) for loans payment decreased by 20%. It was the lowest level in a month but still much higher than the same week a year ago when the rate was around 4.5%.

“Government bond yields fell last week amid uncertainty about the health of the banking sector and worries about the broader impact on the economy,” said Joel Kan, MBA’s deputy chief economist. “However, due to increased MBS market volatility, mortgage rates have not fallen as much as Treasury rates.”

Applications to refinance a home loan rose 5% for the week but were down 68% from the same week a year ago. Refinancing demand is very sensitive to weekly interest rate movements, but currently there are few borrowers who can still benefit from refinancing at today’s higher interest rates.

Mortgage applications to buy a home rose 2% from the previous week and were 36% lower than the same week a year ago. Today’s homebuyers may be less influenced by weekly interest rate movements and more influenced by the state of the economy. Pressure on the banking sector, high home prices and a tight supply of homes for sale have weighed heavily on consumer confidence.

Mortgage rates rose earlier this week as fears about the banking sector eased somewhat, at least in financial markets, according to a separate index from Mortgage News Daily. On Tuesday, she put the average rate at 6.75%.

All ears are on the Federal Reserve, which is expected to hike the federal funds rate by a quarter point on the strains in the banking sector. Mortgage rates don’t exactly follow the Fed, but they do respond to their perception of the broader economy.

“In any case, they will also update their interest rate outlook for the coming months/years and that is arguably more important than what they are doing [the] rate hike,” wrote Matthew Graham, Chief Operating Officer of Mortgage News Daily.