Mortgage demand takes huge hit as interest rates exceed 7%

“Mortgage rates returned above 7 percent last week after news of higher inflation in January, dampening hopes for a near-term rate cut,” Mike Fratantoni, MBA's chief economist, said in a press release.

Home loan refinance applications fell 11% last week, compared to the week before, and were only 0.1% higher than the same week last year. One year ago, the 30-year fixed rate was 6.62%. Refinancing volume was higher than last year's levels, even with interest rates higher this year, but the jump in interest rates last week made it clear that refinancing isn't worth it for most borrowers.

Home mortgage applications fell 10% during the week and were 13% lower than the same week a year ago. They sat at their lowest level since early November 2023.

“Prospective homebuyers are very sensitive to these price changes, as affordability is strained by rising prices and rising home values ​​in this supply-constrained market,” Fratantoni added.

As interest rates rose, the share of adjustable-rate mortgage (ARM) activity increased to 7.4% of total applications. ARMs offer lower interest rates but are considered riskier because they can adjust higher after a specified period.

Mortgage rates jumped to higher levels on Friday after a monthly government report on wholesale rates showed inflation was still persistent and hotter than most analysts expected. They haven't moved much to start this week.