As mortgage rates suddenly shoot to heights not seen in months, borrowers are backing away and demand for home loans is falling, according to new data from a lenders trade group.
Experts who keep a close eye on rates say consumers may have the wrong idea and could wind up being sorry.
Homebuyers who are on the fence, and homeowners who still haven’t refinanced to slash their monthly mortgage payments, will be filled with regret if rates go higher still — which is how the signs appear to be pointing.
Mortgage demand takes a dive
Mortgage applications plummeted 11.4% in the week ending Feb. 19, the Mortgage Bankers Association, or MBA, reported on Wednesday.
That happened as mortgage rates rose sharply.
“Mortgage rates have increased in six of the last eight weeks, with the benchmark 30-year fixed rate last week climbing above 3% to its highest level since September 2020,” says Joel Kan, the MBA’s forecaster.
The average for a 30-year fixed-rate mortgage jumped to 3.08% in the trade group’s weekly survey, from 2.98% a week earlier. On Thursday, rates hit a six-month high in the closely followed weekly survey from mortgage giant Freddie Mac, which has 30-year loans averaging 2.97%.
Higher mortgage rates helped drive refinance applications down 11% last week to their weakest level since December, the MBA says. And, refi loans continued to lose their dominance: They accounted for 68.5% of all mortgage applications last week, down from 69.3% the previous week.
But last week’s refinance activity was still up 50% from a year ago.
The risk of even higher mortgage rates
Homeowners considering a refi aren’t the only ones getting spooked by higher mortgage rates. Applications for new, homebuyer mortgages — called “purchase loans” — sank 12% last week but were 7% higher than last year.
If you’re a would-be borrower, sidelining yourself and waiting for lower rates to return could be a major miscalculation. After all, what if rates just keep rising, instead of retreating?
“There are no obvious and immediate events on my radar that might trigger such a switch and bring significantly lower mortgage rates anytime soon,” writes Peter Warden, editor of the website The Mortgage Reports.
Given the risk of even higher rates, Warden is advising his readers to lock a mortgage rate today, whether they’ve got a loan that’s closing in seven days or 60.
Rates are going up because the interest on Treasury bonds is skyrocketing. Mortgage rates tend to track the yield on the 10-year Treasury note, which topped 1.4% on Wednesday for the first time since February 2020.
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