A key measure of home-purchase applications fell to a three-month low as mortgage rates started to rise again.
The Mortgage Bankers Association's (MBA) index of mortgage applications slid 5.7% for the week ended May 24, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan rose to 7.05% last week from the previous level of 7.01%. While that is down from a peak of 8% in October, it marks the highest level for interest rates in a month.
"Mortgage rates increased for the first time in four weeks, with the 30-year fixed rate up to 7.05% and all other loan types also seeing increases," said Joel Kan, MBA's vice president and deputy chief economist. "The uptick in rates led to a decline in mortgage applications heading into Memorial Day weekend."
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Housing demand cooled as rates moved higher. Applications for a mortgage to purchase a home dropped 1% from the previous week. Application volume is down 10% compared with the same time last year.
Demand for refinancing also fell last week, tumbling 14% from the previous week, according to the survey. Compared with the same time last year, refinance applications are up 12%.
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The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve's aggressive tightening campaign, which sent interest rates to the highest level in 23 years.
Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic.
On top of that, investors are growing skeptical about the odds of a Fed rate hike this year given the string of hotter-than-expected inflation reports at the beginning of the year.
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Most economists now expect the cuts to begin in September or November amid signs that inflation remains abnormally high.
