Mortgage demand drops as higher interest rates hit demand

The highest mortgage rates in more than 20 years coincided with one of the deadliest hurricanes on record in the United States, both contributing to a steep drop in mortgage demand.

The Mortgage Bankers Association seasonally adjusted index was revised to the lowest level since 1997, and the total mortgage application volume fell 14.2% last week compared with the previous week.

The average contract interest rate for 30 year fixed-rate mortgages with conforming loan balances $647,200 or less has increased to 6.75% from 1.15, with the origination fee decreasing to 0.95 from 1.15 for loans with a 20% down payment.

The current rate has gone up 130 basis points in the past seven weeks, according to Joel Kan, an MBA economist.

The volume of refinance, which is most sensitive to weekly interest rate moves, dropped 18% for the week and was 86% lower than the same week a year ago. In the previous week, the refinance share of mortgage activity decreased to 29% of total applications, from 30.2% the previous week.

Mortgage applications to purchase a home fell 13% for the week and were 37% lower year over year.

There was also an impact from Hurricane Ian's arrival in Florida last week, which prompted widespread closings and evacuations. Applications in Florida fell 31%, compared to 14% overall, on a non-seasonally adjusted basis, Kan said.

With higher interest rates making the housing market even more expensive, homebuyers turned to adjustable-rate mortgages, which offer a lower interest rate. The share of activity increased to 11.8%, up from 8.5% a month ago and around 3% at the beginning of the year when mortgage rates were less than half what they are now.

Mortgage rates came down slightly this week, according to another survey from Mortgage News Daily, but all bets are off at the end of the week when the important monthly employment report is released. Mortgage rates could move decisively in either direction depending on how investors view the results and how the Federal Reserve might react to those results.