A key measure of home-purchase applications fell sharply last week as consumer demand cooled in the face of higher mortgage rates.
The Mortgage Bankers Association’s index of mortgage applications tumbled 5.7%, according to new data published on Wednesday.
"Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months at 6.57 percent," said Joel Kan, MBA's deputy chief economist. "Purchase applications decreased 5 percent to its slowest pace in a month, as buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce."
Demand for refinancing also continued to plunge last week, tumbling another 8%, according to the survey. Compared with the same time last year, refinance applications are down a stunning 4%.
Open house at a home for sale in Evesham Township, New Jersey, Feb. 26, 2023. (Fox News)
"Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive," Kan said.
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign.
Policymakers already lifted the benchmark federal funds rate 10 consecutive times as they try to crush stubborn inflation and cool the economy.
For months, higher mortgage rates have dampened consumer demand and brought down home prices. As rates have slowly fallen from a peak of 7%, the housing market has shown early signs of stirring back to life.
Homes in Rocklin, California, Tuesday, Dec. 6, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
However, the return to lower mortgage rates has not been smooth. In fact, rates moved significantly higher to start the week, according to a separate survey from Mortgage News Daily, with the average rate on the popular 30-year mortgage climbing to 6.69% from 6.59%.
Those rates remain significantly higher than just one year ago, when rates hovered around 5%.
Limited inventory has also bolstered demand and prices this month.
A recent report from Realtor.com showed that the number of available homes on the market in March is down more than 50% from the typical amount before the pandemic began.