The ongoing surge in mortgage rates is exerting a substantial impact on the demand from both existing homeowners and potential homebuyers.

According to the Mortgage Bankers Association's seasonally adjusted index, total mortgage application volume experienced a notable decline of 5.6% last week compared to the previous week. An additional adjustment was made to accommodate the Presidents Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) saw a marginal decrease from 7.06% to 7.04%, accompanied by an increase in points from 0.66 to 0.67 (inclusive of the origination fee) for loans with a 20% down payment. Notably, this rate was approximately a quarter percentage point higher than the corresponding period a year ago.

Consequently, applications for refinancing home loans experienced a 7% decline compared to the previous week and a 1% decrease compared to the same week one year ago.

MBA’s Chief Economist, Mike Fratantoni, commented, "Higher rates in recent weeks have stalled activity, particularly impacting those seeking FHA and VA refinances." FHA and VA loans, generally favored by lower-income borrowers due to their lower down payment requirements, were notably affected.

Applications for mortgages to purchase a home also witnessed a decline of 5% for the week and were 12% lower than the corresponding week one year ago.

However, Fratantoni highlighted an interesting trend, noting a 19% year-over-year increase in mortgage demand from buyers eyeing newly constructed homes in January.

“This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% surely don’t help,” he added. Notably, rates remained in the 6% range throughout January.

A separate survey from Mortgage News Daily indicated that mortgage rates moved higher again at the beginning of this week. The 30-year fixed is now at the highest level since early December 2023. ⁠

Matthew Graham, Chief Operating Officer at Mortgage News Daily, commented, "There were no interesting or obvious catalysts for the move, nor would we expect there to be given the level of volatility seen on almost any day of the past 2 weeks.