7% mortgage rates make a comeback, stifling home-buying demand

The overall market composite index — a measure of mortgage application volume — fell in the last week, according to the Mortgage Bankers Association (MBA) said on Wednesday. 

The market index fell 10.6% to 181.6 for the week ending February 16 from a week ago. A year ago, the index stood at 199.4.

Key details: The purchase index — which measures mortgage applications for the purchase of a home — fell 10.1% from a week ago.

The refinance index fell 11.4%, as homeowners found little incentive to do so.

The average contract rate for the 30-year mortgage for homes sold for $766,550 or less was 7.06% for the week ending February 16. That’s up from 6.87% from the week before. 

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $766,550, was 7.16%, up from 7% the previous week. 

The average rate for a 30-year mortgage backed by the Federal Housing Administration was up to 6.91% from 6.68%.

The 15-year rose to 6.61% from 6.53% from the previous week. 

The rate for adjustable-rate mortgages rose to 6.37% from last week’s 6.3%. 

The big picture: With a March rate cut by the Fed looking unlikely, the market has pushed mortgage rates up to 7%, which is the highest level in two months. The increase in rates could chill the housing market once more as higher rates make it more expensive to buy a home with a mortgage. 

Yet forecasters continue to say that rates will fall through 2024.

With spring home-buying season soon approaching, “expect mortgage rates to start declining … as inflation eases and the Fed finally starts cutting interest rates,” Chen Zhao, economic research lead at Redfin, added.

What the MBA said: “Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said in a statement.