Homebuyers Are Making a Surprising Move

Mortgage applications rose even though rates went up, highlighting the fact homebuyers were willing to pay higher borrowing costs for home loans, data from the Mortgage Bankers Association (MBA) reveals.

In previous weeks, higher borrowing costs had contributed to depressed activity in the housing market.

For the week ending April 12, mortgage applications went up more than 3 percent from a week earlier, even as rates had shot up above 7 percent. Even the refinance space was in positive territory, with the Refinance Index also ticking up 0.5 percent from the prior week and was up 11 percent compared to the same time a year ago.

“Rates increased for the second consecutive week, driven by incoming data indicating that the economy remains strong and inflation is proving tougher to bring down. Mortgage rates increased across the board, with the 30-year fixed rate at 7.13 percent—reaching its highest level since December 2023,” Joel Kan, MBA’s deputy chief economist, said in a statement. “Despite these higher rates, application activity picked up, possibly as some borrowers decided to act in case rates continue to rise.”

Mortgage rates have been up and down over the last few weeks. After declines from the 8 percent peak in the fall to the mid-6 percent ranges to end the year and into the start of 2024, they have shot up since then.

The 30-year fixed rate has now been hovering in and around 7 percent in recent weeks on the back of economic news that suggests that borrowing costs are likely to remain elevated.

Hot inflation data—which sparked the Federal Reserve to hike rates to their highest level in more than two decades that in turn have pushed up borrowing costs—has been stubbornly higher than the policymakers’ target of 2 percent. The Consumer Price Index (CPI) inflation came in at 3.5 percent annually in March.

On Tuesday, the Fed chair Jerome Powell telegraphed the possibility that elevated borrowing costs may stay higher for a while longer. Following those comments, the 30-year fixed rate rose to 7.5 percent at the close of business, according to a daily tracker from the Mortgage News Daily.

While analysts say higher rates tend to depress mortgage applications, buyers seemed willing to plunge into the housing market, at least for the week that ended April 12.

“Purchase applications drove most of the increase,” MBA’s Kan said, though he added that they were below 2023’s pace of around 10 percent. “Refinance applications increased very slightly, driven by a 3 percent gain in conventional applications.”