Jul 03, 2024

Decline in Mortgage Applications as Interest Rates Exceed 7%

Mortgage applications decrease as rates climb, affecting affordability and the housing market. Learn more about the current mortgage trends.

As mortgage rates soar above 7%, mortgage applications have seen a decline. The average rate for 30-year fixed mortgages has risen to 7.03%, impacting buyer affordability and slowing down the housing market. This change comes despite potential rate cuts from the Federal Reserve later this year.

Recent Trends in Mortgage Applications

The landscape of the U.S. housing market is experiencing a noticeable shift as mortgage applications decline amid rising interest rates. According to the latest data from the Mortgage Bankers Association, there has been a 2.6% drop in loan applications as rates for 30-year fixed-rate mortgages climbed back above the 7% mark.

Impact of Rising Interest Rates

The increase in interest rates has been significant, with the average rate for 30-year fixed mortgages rising to 7.03% from 6.93%. Similarly, rates for 15-year fixed mortgages have increased, moving up to 6.56% from 6.46%. This uptick in rates reflects broader economic pressures, including ongoing inflation concerns, which continue to shape market expectations and influence Federal Reserve policies.

Federal Reserve's Stance and Market Reactions

Despite the uptick in mortgage rates, there is ongoing anticipation that the Federal Reserve may cut rates later this year, aiming to bring inflation closer to its target. The current key rate is held between 5.25% and 5.50%, with hopes pinned on reducing the inflation rate from 3.4% to 2%.

Market Responses to Changing Mortgage Rates

The response from the housing market to these changes has been mixed. While mortgage applications have decreased, there is a noteworthy impact on related financial markets. Mortgage lender stocks have generally trended downward, with significant players like JPMorgan Chase, Bank of America, and Wells Fargo seeing declines in their stock values. Conversely, mortgage-backed security ETFs like the iShares MBS ETF and the Vanguard Mortgage-Backed Securities ETF have seen increases.

The Bottom Line

The rising mortgage rates pose challenges and opportunities within the real estate and financial markets. As conditions evolve, potential buyers may benefit from closely monitoring rate changes and exploring their options for securing the best possible terms for their circumstances.

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