Higher interest rates took some recent wind out of the sails in the mortgage market.

The Mortgage Bankers Association’s seasonally adjusted index shows that the overall volume of mortgage applications dropped 1.1% from the prior week after the gains made the week before.

Average contract interest rates for 30-year fixed rate mortgages that have conforming loan balances up to $548,000.25 increased from 3.03% to 3.10%. For loans with 20% down payments, the points rose from 0.30 to 0.34.

After last week’s FOMC meeting, Treasury yields rose due to increased optimism regarding the strength of our economy. Joel Kan (MBA’s Associate Vice President of Economic and Industry Forecasting) stated that all mortgage rates rose as a result. “The benchmark 30-year fixed interest rate reached its highest level since the beginning of July 2021.”

Refinance applications for a home loan were down 1% compared to the week before and were basically flat compared to a year ago. Home loans are very sensitive to rate changes. This week saw an increase in interest rates late last week. It continued through this week. The negative impact on refinance demand is expected to be greater in the next week’s report.

Last week’s mortgage applications for home purchases fell by 1% and was 12% less than one year ago. This is not due to rising interest rates which remain historically low but sky-high prices.

Prices nationally increased 19.7% year over year in July, up from an 18.7% annual increase in June, according to the latest S&P CoreLogic Case-Shiller Home Price Index. Another record-breaking increase.

With home-price appreciation increasing by more than 19% annually in July and continuing to rise, loan applications for higher amounts are outpacing lower-balance loans. Kan reported that the average loan for a purchase order was $410,000. It is at its highest since May 2021.

Because sales are down and there is more inventory, price gains will soon slow. Moreover, rising prices will be fueled by higher mortgage rates. Potential buyers will face increased monthly payments.