Mortgage Demand Drops as Rates Surge and Affordability Falls

Mortgage demand continued to tumble last week as mortgage rates surged higher and affordability weakened further, according to the Mortgage Bankers Association’s seasonally adjusted index. Total mortgage application volume dropped 10.5% from the previous week, marking the third consecutive week of declining demand despite intermittent rate fluctuations.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.43% from 6.30%, reaching its highest level since October 2025. This rise in borrowing costs directly contributed to reduced activity across both refinance and purchase segments of the market.

Refinance demand experienced a particularly sharp decline, falling 15% week-over-week. Although refinance activity remained 52% higher than the same week one year ago, its share of total mortgage applications decreased to 49.6%, down from a 60% share in mid-January, indicating a significant pullback in homeowners seeking to restructure existing loans.

Applications for mortgages to purchase a home dropped 5% for the week and were just 5% higher than the same week one year ago. This minimal year-over-year growth in purchase demand suggests persistent affordability challenges are deterring prospective buyers, even as spring traditionally brings increased homebuying activity.

The downturn in mortgage demand coincides with broader economic pressures, including elevated Treasury yields driven by geopolitical factors. Rising oil prices, linked to international conflicts and disruptions in key shipping routes such as the Strait of Hormuz, have contributed to higher yields, which in turn influence mortgage pricing and limit the Federal Reserve’s ability to lower rates despite domestic economic considerations.

Industry analysts note that the housing market remains particularly sensitive to interest rate changes due to its reliance on borrowing. As monthly payments increase with higher rates, many potential buyers are priced out of the market, while existing homeowners lack incentive to refinance into more expensive loans, creating a dual drag on overall mortgage activity.

The persistent decline in mortgage applications over three consecutive weeks, despite occasional rate dips, underscores a deeper hesitation among consumers to enter the housing market. This trend reflects not just temporary rate sensitivity but a broader reassessment of affordability and financial risk amid ongoing economic uncertainty.