Mortgage demand has taken a hit as rising interest rates have led to a decrease in mortgage applications for the first time in five weeks. According to the Mortgage Bankers Association (MBA), the market composite index, which measures application volume, fell by 0.7% on a seasonally adjusted basis for the week ending December 13. This decline is attributed to a slight drop in refinance activity and an increase in mortgage rates, which have deterred potential borrowers.
The MBA's weekly survey indicated that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.67% to 6.75%. This uptick in rates has led to a decline in overall mortgage application activity, breaking a five-week streak of increases.
Refinance applications, which are sensitive to interest rate changes, saw a 3% decrease week-over-week. However, they are still 41% higher compared to the same period last year. The refinance share of total mortgage activity remained nearly steady at 46.7%.
Despite the overall decline in mortgage applications, the seasonally adjusted purchase index experienced a slight increase of 1% week-over-week. On an unadjusted basis, however, it dropped by 2%. Compared to the same period last year, the index was up by 6%, indicating a resilient demand for home purchases.
The increase in purchase activity can be attributed to improving inventory conditions and a more positive outlook on the economy and job market. Conventional and VA purchase applications were the primary drivers of this week’s increase in purchase activity.
The MBA's Builder Application Survey (BAS) for November revealed a 7.2% annual increase in mortgage applications for new home purchases, despite a seasonal decline of 12% from October. The FHA accounted for 28% of these applications, highlighting the ongoing demand among first-time homebuyers.
In November, new single-family home sales reached a seasonally adjusted annual rate of 713,000 units, a 4.6% decrease from October’s pace. The average loan size for new homes fell to $402,873 in November from $409,942 in October.
The recent rise in mortgage rates has led to a notable decline in mortgage demand, particularly in refinance applications. However, the purchase market remains active, supported by improving economic conditions and a steady demand for new homes. As the market adjusts to these changes, potential homebuyers and investors will need to navigate the evolving landscape of mortgage rates and application trends.