The housing market in Arlington, Virginia, as well as the rest of the country, is experiencing a significant shift due to escalating mortgage rates. This surge was particularly noticeable last week and resulted in a 6% reduction in overall mortgage demand when contrasted with the preceding week’s figures. These statistics were corroborated by the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances that are $726,200 or less, rose to 7.53% from the previous 7.41%. Additionally, points escalated to 0.80 from 0.71, which includes the origination fee for loans accompanied by a 20% down payment. To put this into perspective, exactly one year ago the rate stood at 6.75%.
Joel Kan, MBA’s vice president and deputy chief economist, attributed this rise in mortgage rates to recent fluctuations in Treasury yields. He stated that due to this rise, mortgage applications have dwindled to their lowest level since 1996.
The number of applications to refinance home loans also decreased by 7% over the week and is currently 11% lower than it was at the same time last year. Refinances now constitute less than one-third of all mortgage applications. A stark contrast from just two years ago when refinances accounted for approximately three-quarters of all mortgage applications amidst record low rates.
Simultaneously, applications for mortgages to purchase homes fell by 6% over the week and are currently running at a rate that is 22% lower than that same week one year ago.
Kan noted that due to rapidly increasing rates, potential homebuyers are being squeezed out of the market, leading to activity levels reminiscent of those seen in 1995. Interestingly though, adjustable-rate mortgage (ARM) applications have seen an increase and now make up 8% of purchase applications, up from 6.7% around a month ago when interest rates were somewhat more favorable. ARMs often have lower rates but are only fixed for a shorter term, usually five or ten years.
Furthermore, a daily survey from Mortgage News Daily reported an even higher rate for the 30-year fixed this week, reaching 7.72% on Tuesday. This is reflective of investors’ reactions to better-than-expected economic data, which could potentially prompt the Federal Reserve to take a more assertive stance on its high-interest rate policy.