Mortgage applications dropped last week as interest rates on home loans spiked higher, according to data released Wednesday by the Mortgage Bankers Association (MBA).
The MBA’s market composite index, which measures mortgage lending among the trade group’s members, fell 3.7 percent last week after seasonal adjustments. The drop came as the average 30-year fixed mortgage rate rose to 5.8 percent, the highest level since mid-July.
Home sales have fallen sharply since March as the Federal Reserve began a series of interest rate hikes meant to slow the economy. Higher mortgage interest rates make monthly payments on homes more expensive and reduce the number of buyers in the market. The squeeze of higher interest rates and fewer buyers could also force sellers to reduce their asking prices.
While the Fed does not directly control the interest rates charged on mortgages, lenders typically boost rates in line with how high they expect the central bank to hike borrowing costs across the economy. The recent spike in rates follows several speeches from top Fed officials, including Fed Chair Jerome Powell, who insisted the bank would continue to hike interest rates to fight high inflation.
Higher mortgage rates have also taken a bite out of refinancing applications, which fell 8 percent last week.
“Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates and a weaker economic outlook,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“However, rising inventories and slower home-price growth could potentially bring some buyers back into the market later this year.”
Higher mortgage rates may help bring home prices down next year if enough buyers stay on the sidelines. Home prices have grown at double digit annual rates since 2020 and have steamed ahead even as sales declined earlier this year.
Even so, experts warn the toll of higher interest rates on the broader economy — particularly the construction sector — may deepen a longer-term shortage of affordable housing.
