Mortgage refinance demand plunges 19% after interest rates shoot higher

Mortgage rates last week jumped to the highest level since the end of last year, causing a crash in the growing refinance demand the market had been seeing at the start of this year.

That pushed total mortgage application volume down 10.9% compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $832,750 or less, increased to 6.30% from 6.19%, with points increasing to 0.63 from 0.58, including the origination fee, for loans with a 20% down payment.

"Mortgage rates continued to move higher, driven by increasing Treasury yields as the conflict in the Middle East kept oil prices elevated, along with the risk of a broader inflationary shock.

Mortgage rates increased across the board," said Joel Kan, an MBA economist in a release.

"Rates were around 20 basis points higher than they were two weeks ago, and this caused a reversal in refinance activity, particularly for conventional refinance applications, which decreased 27 percent over the week.

Government refinances also declined but by 5 percent, as FHA rates have not increased quite as rapidly," Kan added.

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Affordability is improving, with prices now dropping in some markets and flat in others compared with last spring.

Mortgage rates moved slightly lower to start this week, according to a separate survey from Mortgage News Daily.

While most Federal Reserve watchers do not expect the central bank to cut its interest rate at the open market committee meeting today, there is always a possibility that commentary from the chairman could move bond markets.

"Fed days can still cause volatility in rates, for better or worse.

In [Wednesday's] case, any impact from the Fed should be smaller than it otherwise would have been due to the market's preoccupation with geopolitical influences," wrote Matthew Graham, chief operating officer at Mortgage News Daily.