Mortgage demand plummets as interest rates hover near 13-year high

Mortgage rates hit 5% for first time since 2011

Structured Finance Association CEO Michael Bright weighs in as home prices skyrocket across the nation on ‘Fox Business Tonight.’

Homebuyer demand for mortgages tumbled last week as the average interest rate on the most popular U.S. home loan hovered near a 13-year high, a sign the red-hot housing market may be starting to cool off, according to new data from the Mortgage Bankers Association. 

Mortgage applications to purchase a home dropped 12% on a weekly basis and are down 15% compared with the same week one year ago. It marked the first time in three weeks that monthly mortgage demand fell.

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Although mortgage rates have receded slightly from the record high notched last week, the average rate on the 30-year loan is still around 5.378%. By comparison, just one year ago, the 30-year rate stood at 3.00%. Since the start of the year, rates have jumped 2% – the fastest pace of growth since May 1994. 

This May 22, 2020 file photo shows a sold sign in front of a house in Brighton, N.Y. Long-term U.S. mortgage rates fell this week with the benchmark 30-year home loan hitting its lowest level ever.  ((AP Photo/Ted Shaffrey, File) / AP Newsroom)

"Purchase applications fell 12% last week, as prospective homebuyers have been put off by the higher rates and worsening affordability conditions," said Joel Kan, an associate vice president of economic and industry forecasting at MBA. "General uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search."

With mortgage rates rising, refinance activity is also plunging: Applications to refinance a home loan dropped another 10% week to week. In all, refinance demand is down 76% compared to one year ago.

The latest data comes as the Federal Reserve looks to calm the housing market that lit up during the COVID-19 pandemic, as well as bring down sky-high inflation. 

A man wearing a mask walks past the U.S. Federal Reserve building in Washington D.C., the United States, on April 29, 2020.  ((Xinhua/Liu Jie via Getty Images) / Getty Images)

Policymakers lifted the benchmark federal funds rate by a half point earlier this month and are widely expected to approve at least two more, similarly sized hikes at their upcoming meetings in June and July. Following the 50-basis point increase in May, mortgage rates climbed to 5.3%, according to the mortgage financier Freddie Mac.

Fed Chairman Jerome Powell reiterated that sentiment on Tuesday during a Wall Street Journal live event, pledging to "keep pushing" until inflation falls back in line with the central bank's 2% target. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.

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"What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that," Powell said. "If that involves moving past broadly understood levels of neutral we won’t hesitate at all to do that."  

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