Mortgage applications dropped last week as interest rates ticked higher, cooling activity among potential homebuyers.
Applications for mortgages dropped to their lowest level since December 2019 in the week ending on Feb. 18, according to the Mortgage Bankers Association. Total mortgage applications dropped 13.1 percent from the previous week on a seasonally adjusted basis.
Applications for refinancing also fell 16 percent from the previous week and a staggering 56 percent year-over-year.
Rising mortgage rates are one culprit dragging down application volume. The average contract interest rate on a 30-year fixed-rate mortgage with conforming loan balances ($647,200 or less) was 4.06 percent last week, up from 4.05 percent. Points rose to 0.48 from 0.45 (including origination fee) for loans with a 20 percent down payment.
“Higher mortgage rates have quickly shut off refinances, with activity down in six of the first seven weeks of 2022,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
The share of total applications through the FHA increased from 8.3 percent to 8.7 percent from a week earlier, while the share of VA applications also increased, from 9.3 percent to 9.9 percent. The USDA share of applications remained at 0.4 percent.
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Applications to purchase a home also declined 10 percent from the previous week and 6 percent year-over-year. In addition to the mortgage rates, Kan pointed towards high sale prices and low inventory for the declining purchases.
Mortgage rates have surged rapidly since the new year. In the first week of 2022, the average rate for a 30-year fixed-rate loan was 3.22 percent, the highest since May 2020 at the time. In early 2021, the average rate was 2.65 percent.
Meanwhile, home prices skyrocketed in 2021 at the fastest rate in 34 years. The S&P CoreLogic Case-Shiller Index posted an 18.8 percent annual gain in December, but the report warned a slowdown could be on its way due to low inventory and rising rates.