The sharp rise in mortgage rates has had a negative impact on mortgage demand. According to the seasonally adjusted index of the Mortgage Bankers Association, the total application volume dropped nearly 7 percent last week. 

Average contract interest rates for 30-year fixed rate mortgages (conforming loan balances of $554,250 or less), rose to 3.14% and 0.34 respectively. Points also increased from 0.34 to 0.35 for loans with 20% down payments. This is the highest rate since July. 

Refinance demand, which is especially sensitive to weekly interest rate movements, fell to the lowest level in three months, down 10% last week compared with the previous week. Volume fell 16% compared to the previous week one year. 

Joel Kan, MBA associate vice president for economic and industry forecasting, stated that higher rates reduce borrowers’ motivation to refinance. 

Mortgage applications to purchase a home declined 2% for the week and were 13% lower than the same week one year ago. It was driven by a drop in conventional loan applications. Government loans, which are mostly used by lower-income borrowers, saw a 1% increase in demand. 

But that didn’t suffice to lower the average loan amount of $410,000. Kan stated that traditional loans with higher interest rates and home prices still dominating the activity mix. 

To start the week, rates fell a bit but moved up Tuesday. Economic data was reflected in the bond market’s reaction.

Matthew Graham, Chief Operating Officer at Mortgage News Daily, stated that “after an important report about the services sector came back stronger than anticipated, bonds continued to decline.” Mid-day adjustments are sometimes made by mortgage lenders to adjust their rates when bonds lose sufficient ground mid-day.