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A sharp increase in mortgage rates is causing home buyers and refinancers to pause. Total mortgage application volume, which includes home purchases and refinancings, dropped 7% last week compared with the previous week, the Mortgage Bankers Association reported Wednesday.
The MBA reports that the average contract interest rate for a 30-year fixed-rate mortgage rose to 3.14%, up from 3.10% the previous week. That marks the highest level since July.
The National Association of REALTORS® in a blog post last week said that the era of mortgage rates below 3% is likely over. NAR predicts that mortgage rates will average 3.5% by mid-2022.
“Consumers shouldn’t panic,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the association’s blog. “Keep in mind that even though rates will increase in the following months, these rates will still be historically low.”
Still, home buyers are showing some signs of slowing their purchases this fall, which also follows seasonal patterns. Mortgage applications to purchase a home, which is viewed as a gauge for home buying, dropped by 2% last week and are now 13% lower than the same week a year ago, the MBA reports. Conventional loan applications made up most of that drop; government loans, on the other hand, posted a 1% increase.
“But that was still not enough to bring down the average loan balance of $410,000,” says Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “With home price appreciation and sales prices remaining very elevated, applications for higher balance, conventional loans still dominate the mix of activity.”
As rates rise, existing-home owners also are having less incentive to refinance, Kan says. Refinance applications fell 10% last week compared with the previous week and are 16% lower then a year ago.