Mortgage rates hit their highest level in over a year, causing demand to drop below year-ago levels

Mortgage application volume fell 2.9% last week as rates climbed to their highest level in over a year, pushing total demand below year-ago levels, according to the Mortgage Bankers Association. The decline marks a fresh setback for housing activity as borrowing costs continue to pressure affordability.

Higher mortgage rates are compressing both purchase and refinance activity. Purchase applications, which represent homebuyers seeking loans for new purchases, are now running below their levels from the same week in 2024. Refinance demand has been hit even harder as the incentive to swap existing mortgages evaporates when rates rise.

The move in rates reflects broader fixed-income trends. The 10-year Treasury yield has climbed in recent weeks on persistent inflation signals and expectations that the Federal Reserve will keep policy restrictive for longer. Mortgage rates typically track the 10-year with a lag, meaning recent bond market weakness is now filtering into housing finance.

Homebuilders and mortgage lenders face mounting headwinds. Reduced application volume signals slower origination revenue ahead, while builders confront weakening buyer traffic despite limited existing-home inventory.