Weekly mortgage refinance demand is down more than 40% in a month

Mortgage rates moved even higher again last week, as the war with Iran continues to stoke fears of inflation. As a result, total mortgage application volume fell again, down 10.4% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased to 6.57% from 6.43%, with points remaining unchanged at 0.65, including the origination fee, for loans with a 20% down payment.

Applications to refinance a home loan, which are most sensitive to weekly interest rate moves, dropped 17% for the week and were 33% higher than the same week one year ago. Earlier this year, when rates were lower, refinance demand was more than twice what it was the year before.

“The 30-year mortgage rate, now at 6.57%, reached its highest level since last August and is up half a percentage point from just one month ago,” said Mike Fratantoni, MBA’s chief economist, in a release. “Refinance application volumes declined sharply again last week, and are down more than 40% compared to last month.”

Applications for a mortgage to purchase a home dropped 3% for the week and were just 1% higher than the same week one year ago. The spring housing market, traditionally the busiest of the year, is well underway. While it was forecast to be stronger than last year’s, the war is weighing on affordability and stoking fears over the direction of the overall economy.

“Purchase applications for FHA and VA loans continue to hold up better than those for conventional buyers. However, the shocks of the jump in rates and the increase in overall economic uncertainty are likely having an impact on buyer confidence,” said Fratantoni.

Mortgage rates came down pretty sharply to start this week, according to a separate measure from Mortgage News Daily, as markets digested a potential de-escalation in the Iran war. They are, however, still elevated compared with before the war.

“This marks the best 2 days of improvement since the war began, but the caveat is that the larger movements are often seen after rates hit longer-term highs,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.