The US mortgage market saw a drop in new applications last week as mortgage interest rates hit their highest level since 1997.
The Mortgage Bankers Association’s Weekly Mortgage Application Survey showed that total mortgage applications decreased by 8.3% on a seasonally adjusted basis for the week ending November 16. Refinancing applications, which are more sensitive to changes in interest rates, also fell by 11%.
At the same time, the average rate for a 30-year fixed-rate mortgage reached 4.94%, its highest level since October 1997. This is an increase of 0.26% compared to the prior week.
The rise in interest rates was driven by higher yields on US Treasurys and expectations that the Federal Reserve will continue to raise its target for the federal funds rate. With the Fed expected to raise rates again at the December 19 meeting, mortgage interest rates could continue to increase.
Meanwhile, the demand for purchase mortgage loans also decreased last week. The purchase index declined by 2% compared to the prior week. This might be due to prospective homebuyers taking a more cautious approach to the housing market given the rising interest rates.
The steady increase in mortgage rates could have an impact on the already historically low inventory of homes for sale. Higher interest rates make it more difficult for buyers to finance their purchases and this could lead to a further decrease in home sales.
With houses becoming less affordable, some buyers are expected to take a wait-and-see approach, which could further drive down demand. For those who are able to finance a purchase, however, higher rates are creating incentives for buyers to act now.
Overall, the rise in mortgage interest rates has created a challenging environment for both homebuyers and lenders. The ability of buyers to secure a loan will be determined by their financial situation and the availability of homes in their local market. Lenders, on the other hand, will have to assess their risk accordingly and adjust their practices in order to stay competitive.
