Applications fell for a fifth straight week and refinancing dropped 7.5%. The MBA says spreads widened along with Treasury yields, and homebuilder shares hit a 52-week low.
The cost of a mortgage rose again last week, and fewer Americans applied for one.
Borrowers seeking a 30-year fixed conforming loan faced an average contract rate of 7.49% in the week through , up from 7.30%, according to Mortgage Bankers Association data released Wednesday. Rates have now climbed seven weeks in a row. The last time the MBA's measure was this high was almost three years ago, at 7.61% in November 2023.
Demand for loans shrank again. Total applications dropped 4.2%, extending the losing streak to five weeks. Purchase applications dropped 2.1% and refinancing applications 7.5%. Refinancing activity was down 56% from a year earlier, and unadjusted purchase activity was down 15%.
The payment arithmetic
On a $400,000 loan, a 7.49% rate means a monthly principal and interest payment of about $2,794 over 30 years. At 7.30% it would be about $2,742. A single week's move added about $52 a month, or more than $600 a year.
Other loan types moved up as well. The average rate on Federal Housing Administration loans was 7.14%, and jumbo loans averaged 7.39%. Five-year adjustable-rate mortgages averaged 6.43%. The same $400,000 at that rate costs about $2,510 a month for the initial fixed period, roughly $284 less than the 30-year fixed, which may help explain why borrowers have been turning to adjustable products.
Treasuries and spreads
The usual anchor for home-loan pricing is the 10-year Treasury, which on Wednesday traded at levels unseen since 2002. According to the MBA, Treasuries explain only part of the latest increase.
"Mortgage rates increased to their highest level in almost three years as both Treasury rates increased and spreads widened with the increase in rate volatility," said Joel Kan, an economist at the MBA. Lenders charge a spread above Treasury yields to cover the risk that borrowers refinance or prepay, and that spread tends to widen when rates swing sharply.
The stock market's read
The iShares U.S. Home Construction ETF fell about 2.7% on Wednesday and touched a new 52-week low intraday. Mortgage lenders also fell. Rocket Companies dropped about 1.9% and UWM Holdings about 3.3%.
Competing views
One reading is that higher rates are now feeding directly into housing demand, with a fifth straight drop in applications and refinancing all but shut off.
Another reading rests on Kan's explanation. If part of the increase came from wider spreads tied to rate volatility, a calmer bond market could bring mortgage rates down without the Fed doing anything. Wednesday's strong 10-year auction, which pulled yields off their highs, was a step in that direction.
Thursday's figure
Freddie Mac publishes its own weekly rate survey on Thursday, using a different method. It reported an average of 7.28% last week, up from 7.03%. Next week's MBA release will show whether applications stabilize after five declines, and whether the spread to Treasuries narrows if yields stay below Wednesday's highs.