According to recent data, home buying demand has experienced a significant drop due to a continuous rise in mortgage rates. In fact, these rates have reached the highest level since the year 2000. This increase in rates has had a negative impact on mortgage demand, resulting in the lowest level since 1996. The surge in Treasury yields across the board has played a significant role in these rate changes.

Both refinancing and purchase applications have been affected by the increase in rates. Consequently, the market composite index, which measures mortgage application volume, has experienced a decline. Specifically, for the week ending September 29, the market index fell 6% from the previous week, reaching a value of 178.2. In comparison, the index stood at 218.7 during the same period last year.

Key Details

The decrease in mortgage demand has affected both home buying and refinancing. The purchase index, which measures mortgage applications for the purchase of a home, has dropped by 5.7% compared to the previous week. Notably, purchase applications are currently at their lowest level since 1995.

Similarly, refinancing demand has also experienced a decline due to the higher rates. The refinance index has dropped by 6.6%, indicating decreased activity in this area.

In terms of specific rates, the average contract rate for a 30-year mortgage on homes sold for $726,200 or less was 7.53% for the week ending September 29. This is an increase from the previous week's rate of 7.41%. Additionally, the rate for jumbo loans, which apply to homes sold for over $726,200, rose to 7.51% from the previous week's rate of 7.34%.

These numbers paint a picture of the current state of the housing market, showing a decrease in demand and an increase in mortgage rates. It is essential for prospective homebuyers and those looking to refinance to carefully consider these circumstances.

Mortgage Rates Rise

The average rate for a 30-year mortgage backed by the Federal Housing Administration (FHA) has increased to 7.29% from 7.16%. Meanwhile, the 15-year rate has also risen to 6.86% from 6.73% compared to the previous week. At the same time, the rate for adjustable-rate mortgages (ARMs) has inched up to 6.49% from last week's 6.47%.

Shift Towards ARMs

In the latest week, a growing number of buyers are opting for ARMs due to their lower rates. As a result, the share of ARMs in the mortgage market has risen to 8%.

Implications and Outlook

Despite the recent increase, there is a strong likelihood that rates will continue to climb, particularly as the 10-year yield surpasses 4.8%. Lenders have already started quoting rates as high as 8% for some borrowers, highlighting the potential difficulties that lie ahead for both mortgage lenders and the U.S. housing market.

The prospect of lower mortgage rates is contingent upon the U.S. Federal Reserve halting its rate hikes, which will only occur once economic data indicates a slowdown in the U.S. economy.

Market Analysis

According to Joel Kan, deputy chief economist and vice president at the Mortgage Bankers Association (MBA), the purchase market has witnessed its lowest level of activity since 1995. The rapid rise in rates has deterred many potential homebuyers from entering the market.

During early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) stood at over 4.8%.