The numbers: A surge in mortgage rates to 6% is giving home shoppers chills, pushing them to wait to refinance or buy a home.
With rates doubling from where they were a year ago, demand from buyers continues to weaken, as reflected in the Market Composite Index, a measure of mortgage application volume.
The index is now at its lowest level since December 1999, the Mortgage Bankers Association (MBA) said on Wednesday.
The market index fell 1.2% to 255 in the week ending September 9. A year ago, the index stood at 707.9.
The big picture: Rates hitting 6% is a significant milestone, albeit a negative one, for buyers. Mortgage rates are now at the highest level since November 2008.
Higher rates have pushed buyers to rethink refinancing and contributed to other prospective buyers’ staying on the sidelines, the MBA said.
Yet there’s still a silver lining in the data. Government loans, which many first-time buyers tap on, bucked the trend and in fact, increased week over week, the MBA said.
These were loans from the Veterans Administration and the U.S. Department of Agriculture.
But there’s likely to be more pain in the sector. With inflation continuing to run hot, all eyes turn to the Federal Reserve, which will determine whether it’ll be more aggressive in hiking interest rates.
Higher rates are likely to cool demand even further. Which means that the downturn in housing continues.
Key details: The Refinance Index dropped by 4.2% and was down 83% compared to a year ago.
The Purchase Index — which measures mortgage applications for the purchase of a home — rose by 0.2% from the previous week.
The average contract rate for the 30-year mortgage for homes sold for $647,200 or less was 6.01% for the week ending September 9. That’s up from 5.94%% the week before, the MBA said.
For homes sold for over $647,200, the average rate for the 30-year was 5.56%. The 15-year rose to 5.3%.
The rate for adjustable-rate mortgages, which comprise 9.1% of total applications, rose to 4.83%.
Market reaction: The yield on the 10-year Treasury note
rose above 3.4% in early morning trading.