Mortgage demand in the United States has taken a sharp hit, plunging nearly 13% in the latest week, as mortgage interest rates climbed to their highest levels in two months. This decline reflects growing sensitivity among homebuyers and refinancers to rising borrowing costs amid an environment of persistent inflation and economic uncertainty.
The average contract interest rate for a 30-year fixed-rate mortgage, the most popular home loan product, increased to 6.83% recently, marking a notable uptick after a brief dip earlier in April. This rate level is the highest seen since February 2025 and continues to hover near the 7% mark that has persisted since late 2024. The recent rise follows a period of volatility where rates briefly fell below 6.5% but quickly reversed course.
The increase in mortgage rates is closely tied to broader financial market trends, particularly the yield on the 10-year U.S. Treasury note. Last week, Treasury yields surged, reflecting reduced investor appetite for government securities amid geopolitical tensions and trade uncertainties. This dynamic pushed mortgage rates upward, as lenders adjust to the cost of capital and inflation expectations.
The Mortgage Bankers Association (MBA) reported a 12.7% weekly drop in mortgage applications, the steepest decline since October 2024. Both purchase and refinance applications fell sharply, with refinances declining as borrowers balk at locking in higher rates. Purchase applications also hit their lowest levels in decades, underscoring the dampening effect of rising rates on homebuying activity.
Joel Kan, MBA’s Vice President and Deputy Chief Economist, noted that the persistent elevation of mortgage rates continues to weigh heavily on both purchase and refinance markets. He highlighted that purchase applications have declined to levels not seen since 1995, while refinance applications are at their lowest since early 2023.
Mortgage rates have remained elevated despite the Federal Reserve’s moves to cut the federal funds rate starting in September 2024. While some expected these cuts to translate into lower mortgage rates, the opposite occurred. Rates briefly declined before rebounding sharply, influenced by inflationary pressures, geopolitical risks, and market volatility.
Experts agree that mortgage rates in the historically low 2% to 3% range are unlikely to return anytime soon. Instead, a 6% range is more realistic if inflation is brought under control and lenders regain confidence in the economic outlook.
In response to rising fixed mortgage rates, some homebuyers are opting for adjustable-rate mortgages (ARMs), which typically offer lower initial rates compared to 30-year fixed loans. ARMs accounted for about 9% of mortgage applications recently, the highest share since November 2024, as borrowers seek to mitigate upfront borrowing costs amid rate uncertainty.
The sharp decline in mortgage demand highlights the sensitivity of the housing market to interest rate fluctuations. Higher borrowing costs reduce affordability, limiting the pool of qualified buyers and slowing home sales. This slowdown could have ripple effects on related sectors such as construction, home improvement, and real estate services.
While the Federal Reserve’s rate cuts aim to stimulate economic activity, the lagging response in mortgage rates suggests that inflation concerns and market dynamics continue to dominate. Until inflation is decisively curbed and market confidence improves, mortgage rates are likely to remain elevated, keeping demand subdued.
