Mortgage applications drop 11% as rates jump and Texas outages hurt demand

An “Open House” sign is displayed in the front yard of a home for sale in Columbus, Ohio.

Ty Wright | Bloomberg via Getty Images

Higher mortgage rates and a winter weather disaster combined to weaken mortgage demand last week.

Total mortgage application volume fell 11.4% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.08% from 2.98%, with points increasing to 0.46 from 0.43 (including the origination fee) for loans with a 20% down payment. That rate was 65 basis points higher than a year ago.

“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,” said Joel Kan, an MBA economist. “As a result of these higher rates, overall refinance activity fell to its lowest level since December 2020.”

Applications to refinance a home loan fell 11% for the week but were 50% higher year over year. That annual comparison has been shrinking as rates rise. The refinance share of mortgage activity decreased to 68.5% of total applications from 69.3% the previous week.

Mortgage applications to purchase a home fell 12% for the week but were 7% higher than a year ago. Again, the annual comparison for these applications also has been shrinking.

Higher mortgage rates are definitely a factor, but the severe winter weather across the South last week, and especially the power outages across Texas definitely played a role. That state saw a more than 40% drop in purchase and refinance applications last week, Kan said.

Those who are in the market continue to outbid each other. Home prices are now accelerating at the fastest pace in seven years. The average loan size of purchase applications increased to a record $418,000, in line with the accelerating home-price growth. Prices are rising so quickly because of strong demand and record-low supply.

Mortgage rates continued to push higher this week, which could cut further into refinance demand. While rates are still historically low, when combined with fast-rising prices, it is not a great combination for the all-important spring market.

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