Rising Mortgage Rates Lead to Sharp Decline in Mortgage Demand

Mortgage demand has dropped as interest rates reached their highest level since December 2023, with the Mortgage Bankers Association's index of mortgage applications falling 2.3% and the average rate on a 30-year loan rising to 6.87%. Home purchase and refinance applications both declined, with housing demand stalling due to affordability challenges and low inventory. The Federal Reserve's aggressive tightening campaign has cooled the interest rate-sensitive housing market, and while policymakers have signaled a pause in rate hikes, economists expect rate reductions to begin in May or June. Higher mortgage rates are not only dampening consumer demand but also limiting inventory, with available home supply down 34.3% from pre-pandemic levels.