Demand for mortgages hits the lowest level in four years

Demand for mortgages in the U.S. has fallen to its lowest level since December 2018, even though there was a slight decline in interest rates last week.

The Mortgage Bankers Association reported that mortgage applications fell by a single percentage point last week, compared with the week prior. More telling is that mortgage application volume was down 14% from one year ago.

While rates did fall slightly last week, they still remain far higher than what many borrowers are willing to stomach. Since the start of the year, interest rates have risen steadily, adding hundreds of dollars per month to the cost of a mortgage.

The average contract interest rate for a 30-year fixed-rate mortgage with a conforming loan balance of $647,200 fell from 5.46% to 5.33% last week, the MBA said.

Joel Kan, an economist at the MBA, said this was the fourth time in five weeks that rates have declined, amid concerns of weaker economic growth and a recent sell-off in the stock market that pushed Treasury yields lower.

The rising interest rates, combined with home value increases, mean that home affordability has become a real issue for many borrowers. Home prices continue to make gains because there is so little supply on the market, economists say.

“Demand is high at the upper end of the market, and the supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers,” Kan added.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) decreased to 4.93% from 5.02%. Jumbo loans are mostly held in investor and bank portfolios, as opposed to being sold to Fannie Mae or Freddie Mac. Lenders see them as less risky given the higher credit quality of the borrower to whom they generally go.

Meanwhile, home loan refinance applications, which are more sensitive to interest rate movement than purchase applications, dropped more than 5% for the week. Notably, they’re down more than 75% from the same period last year. Economists say refinance demand is low because most homeowners that could benefit from doing so have already done so in the past two years when rates were at record lows. Pull out your mortgage calculator.