Mortgage demand drops again as rates cross back over 7%

The average interest rate on the popular 30-year fixed mortgage topped 7% on Tuesday, Mortgage News Daily reported. This is the highest level since early March.

Interest rates have been rising due to investor concerns. First, the uncertainty about how the Fed will handle interest rates given that the economy remains strong; and second, the debate over raising the debt ceiling and the possibility of a U.S. default.

Rates in both countries climbed last week as mortgage demand eased. Total mortgage applications fell 4.6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average weekly contract rate for 30-year fixed-rate mortgages with qualifying loan balances ($726,200 or less) increased to 6.69% last week for loans with a 20% down payment, according to MBA. The same week a year ago, the rate was 5.46%.

Mortgage applications for home purchases fell 4% this week and are down 30% from a year ago.

“With interest rates so volatile and for-sale inventory remaining scarce, we haven’t seen a sustained increase in purchase applications,” said Joel Kan, MBA’s vice president and deputy chief economist.

Applications to refinance home loans were down 5% from the previous week and 44% from the same week a year ago. This is the lowest level in two months. Given the much lower interest rates a year ago, not only are few borrowers benefiting from refinancing, but banks have been tightening their lending due to recent bank failures.

Even if the debt crisis is resolved before default, there is not much reason for interest rates to be cut significantly in the short term.

“The gradual improvement in bank sentiment, mixed but resilient economic data, and the Fed’s consistent reminder of their ‘keep rates high for long’ mantra,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.