Homebuyers are rushing to get mortgages before higher rates price them out

Potential home buyers arrive at a property for sale in Columbus, Ohio, with an open house sign.

Last week, a major divergence in mortgage demand was caused by mortgage rates rushing higher. Homebuyers seem to be rushing into the market as the refinancing dries up. The Mortgage Bankers Association reported that the total mortgage application volume rose 2.3%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 3.64% from 3.52%, with points remaining unchanged at 0.45 for loans with a 20% down payment. The rate has increased in the last two weeks and is 72 basis points higher than it was a year ago.

For the week, applications to refi a home loan fell 3% and were 49% lower than a year ago. The share of mortgage activity that was refi decreased to 60.3% from 64.1%.

Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years. Most of the refinance slowdown was caused by declines in the VA and FHA rates, according to the associate vice president of economic and industry forecasting.

Mortgage applications from home buyers jumped 8% for the week, but were still down from a year ago. There is more supply on the higher end of the market. The average loan size for a purchase application was a record.

The larger loan balances are due to the slower growth in government purchase activity and suggest that prospective first-time buyers are struggling to find homes to buy in their price range.

In December, supply did not increase as it usually does, but demand for housing is still strong. Some buyers are jumping on the spring market because they are worried that rates will go up in a few months.

Paul Legere is a buyer's agent with TheJoel Nelson Group in Washington, D.C.

Legere said that he just wrote an offer on a $1.3 million home with an escalation clause up to $1.625 million, and that he lost.