Mortgage Refinance Demand Plunges 19 Percent as Rates Rise to Highest Level Since July

A house for sale in Arlington, Va., on July 13, 2023. Saul Loeb/AFP via Getty Images

Mortgage refinance applications tumbled 19 percent last week as interest rates rose to their highest levels since July, according to the Mortgage Bankers Association’s (MBA) latest weekly survey.

The drop in refinance demand marks the lowest level of refinance activity since May, which comes as the average contract rate for a 30-year fixed mortgage climbed to 6.81 percent last week, the highest since July, according to the survey, released on Nov. 6.

Overall mortgage application volume fell by a seasonally adjusted 10.8 percent last week, marking the sixth consecutive week of declines. Purchase declined 5 percent to its lowest level since mid-August.

“Ten-year Treasury rates remain volatile and continue to put upward pressure on mortgage rates,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. Mortgage rates have been on an upswing since mid-September, following the trajectory of rising 10-year Treasury yields, which are closely correlated.

Both mortgage rates and 10-year yields hit recent peaks in late April, at around 7.2 percent and 4.6 percent, respectively. They then declined steadily through the summer, with mortgage rates dipping to approximately 6 percent and 10-year yields touching 3.6 percent by early September. However, this trend reversed after the Federal Reserve implemented an interest rate cut in mid-September, pushing both metrics upward.

Some analysts suggest that this rise in 10-year yields aligns with historical patterns observed during previous Fed rate-cutting cycles. Padhraic Garvey, ING’s regional head of research for the Americas, noted in a recent report that it’s common for the 10-year yield to rise by 20–50 basis points after the Fed’s first rate cut.

“That’s not unusual. It likely persists for a bit,” Garvey wrote. He predicted that the 10-year yield would decline only after significant weakening in U.S. labor market data.

In a subsequent note, Garvey projected that the 10-year yield would bottom out around 3.5–3.7 percent for the remainder of 2024 before climbing to 4.5 percent or higher.

This potential increase could be driven by elevated Treasury issuance in U.S. government borrowing exceeding expectations. Other factors influencing yields include shifts in investor sentiment, such as that seen after former President Donald Trump’s election victory, which spurred a selloff in bonds as investors pivoted to riskier assets like stocks and cryptocurrencies. Treasury yields and prices move inversely, with bond selloffs pushing yields higher.

On Nov. 6, the 10-year Treasury yield climbed to approximately 4.44 percent, its highest level since July. The dollar strengthened and Wall Street’s main indexes soared, hitting record highs.