The U.S. housing market is experiencing a significant shift as mortgage demand falls to its lowest level since 1995, amidst soaring interest rates. The Mortgage Bankers Association's latest data reveals a stark picture: as 30-year mortgage rates hit their highest point in decades, mortgage applications have declined sharply, indicating a market increasingly constrained by rising mortgage interest rates.

A Look at the Numbers

The rate for a typical 30-year mortgage on conforming loan balances (up to $726,200) has escalated to 7.90%, a notable increase from 7.70% just a week prior. This rate is the highest seen in 23 years. Jumbo loan balances (over $726,200) are also affected, with rates rising from 7.56% to 7.78%. FHA-backed loans, often seen as a more affordable option, have not been spared, with their rates increasing from 7.36% to 7.52%. The 15-year mortgage rates have also risen to 7.08% from 6.98%.

This upward trend in mortgage rates aligns with the rising yields on 10-year Treasury bonds, which have climbed more than 10 basis points to 4.95%. Joel Kan, MBA’s deputy chief economist, attributes this rise to global investors' concerns about persistent high rates and growing fiscal deficits.

Impact on Mortgage Demand

The increasing mortgage rates have started to dampen the demand for mortgages. Both first-time homebuyers and those looking to refinance are hesitant to commit to these high rates. The application rates for new 30-year mortgages have decreased by 2% week over week and 22% year over year, marking a significant downturn in demand. Refinance applications, though up by 2% week over week, are down 8% year over year.

Interestingly, as demand for fixed-rate mortgages declines, there's a noticeable increase in the demand for adjustable-rate mortgages (ARMs). ARMs, which offer a fixed rate for the first 10 years before resetting, accounted for 9.5% of all mortgage applications at the end of the last week, the highest since November 2022. The current rate for a 5/1 ARM is 6.99%, up from 6.52% the previous week.

Federal Reserve's Role and Future Outlook

Despite these trends, the Federal Reserve is not expected to raise the federal funds rate imminently. However, the persistence of a 'higher for longer' rate strategy is likely to fuel further increases in mortgage interest rates. Until the Fed achieves its inflation target of 2% (or revises this goal), mortgage rates are expected to continue their upward trajectory, further suppressing 30-year mortgage application activity.

In summary, the real estate market is navigating through a period of adjustment, with mortgage demand at a historic low and interest rates at a high. This scenario presents both challenges and opportunities for investors and homebuyers alike.

For more detailed analysis and insights on this topic, read the full article on BiggerPockets.

If you're navigating these complex market conditions and need expert advice or have questions about how these trends might impact your real estate decisions, feel free to text me. I'm here to help.