December 9, 2023

A “For Sale” sign is seen outside a home in Albany, Calif., Tuesday, May 31, 2022.

David Paul Morris | David Paul Morris Bloomberg | Getty Images

Mortgage rates hit their highest level since late May last week, which in turn weighed on mortgage demand.

Total mortgage applications fell 4.4% last week from the previous week, according to the Mortgage Bankers Associationseasonally adjusted index. Demand is currently at its lowest level in a month.

The average contract interest rate on 30-year fixed-rate mortgages with qualifying loan balances ($726,200 or less) rose to 6.85 percent from 6.75 percent, and from 0.64 (including the origination fee) to 0.65 for loans with a 20 percent down payment.

While that’s the average rate for the week, another survey by Mortgage News Daily put it above 7% last Thursday. It has remained above that level since then, rising to 7.08% on Tuesday.

As a result, mortgage demand for home purchases, which had risen for three consecutive weeks, fell 5% this week and was 22% lower than the same week a year ago.

“Interest rates remain more than a percentage point higher than a year ago, and housing affordability remains a challenge in many parts of the country,” MBA deputy chief economist Joel Kan wrote in a release. However, the average loan size for purchase applications fell to $423,500, the lowest level since January 2023.”

Kan said the drop in loan size could be due to lower home purchases in some high-priced markets and higher activity in some lower-priced markets.

Applications to refinance home loans fell 4% this week and were down 30% from the same week a year ago. Year-on-year comparisons may narrow as summer approaches, as it did last summer when mortgage rates rose sharply for the first time since before the pandemic, while refinancing demand eased from highs as a result.

While the 30-year fixed rate remained above 7% last week, it may be affected by the employment data due on Thursday and Friday. That could influence the Fed’s next move, which could include further rate hikes.