Mortgage Demand Falls After Rates Tick Higher

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Mortgage applications declined 0.7% last week – the first drop in five weeks – as interest rates for 30-year fixed mortgages climbed to 6.75%, according to Mortgage Bankers Association (MBA) data.

The rate increase, from 6.67% to 6.75% for conforming loans at or below $766,550, slowed activity across loan markets. Points remained at 0.66 for loans with 20% down payments.

Current rates sit just eight basis points above the same week in 2023.

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Refinance applications fell 3% for the week ending Dec. 13, though volume stayed 41% above last year’s levels. Purchase applications rose 1%, landing 6% higher than December 2023.

“Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis,” Joel Kan, MBA’s vice president and deputy chief economist, said in a press release. “Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market.”

Government-backed loans showed mixed performance. Federal Housing Administration loans grew to 17.6% of total activity, while Veterans Affairs loans dropped to 15.3% of applications. VA refinance volume fell 17% after two weeks of gains. Department of Agriculture loans edged up to 0.5% of the total.

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Rates climbed across other loan categories. Jumbo mortgages above $766,550 rose to 6.86%, FHA loans reached 6.49% and 15-year fixed rates hit 6.15%. Adjustable-rate mortgages stayed at 5.3% of applications.

The Federal Reserve cut interest rates by 0.25% last week, marking the third consecutive meeting with a rate reduction. As part of the meeting, the Fed released its updated Summary of Economic Projections (SEP) and dot plot, indicating that interest rate cuts will slow in 2025.

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“This was a hawkish cut by the Fed, where it accepted that it would take a longer time to bring down inflation,” Raymond James Chief Economist Eugenio Alemán said in a press release. “At the same time, Fed Chair Jerome Powell indicated that the decision to cut was a ‘close call.’ This is the first time he has indicated that the meeting decision was more difficult than expected.”

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