A key measure of home-purchase applications slumped last week amid a sharp increase in mortgage rates.
The Mortgage Bankers Association's (MBA) index of mortgage applications fell 2.3% for the week ended Feb. 9, compared with the previous week, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan rose to 6.87%. While that is down from a peak of 8% in October, it marks the highest level for interest rates since December 2023.
"Application activity was weaker last week, as mortgage rates moved higher across the board," said Joel Kan, MBA's deputy chief economist.
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Housing demand has stalled out as rates move higher. Applications for a mortgage to purchase a home dropped 3% from the previous week. Application volume is down 12% compared with the same time last year.
Demand for refinancing also fell last week, declining 2% from the previous two weeks, according to the survey. Compared with the same time last year, refinance applications are up about 12%.
"Purchase applications remained subdued as elevated rates continue to add to affordability challenges along with still-low existing housing inventory," Kan said. "Refinance applications declined and remained depressed, with rates still higher than a year ago."
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The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their most recent policy-setting meeting in January that they are done raising interest rates – but are not quite ready to pivot to cutting them yet. Investors had previously penciled in a series of aggressive rate reductions beginning as early as March. Now, most economists expect the cuts to begin in May or June.
Higher mortgage rates are not only dampening consumer demand, but they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
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Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
