Mortgage Applications Drop As Rising Rates Squeeze Refinance Demand

Mortgage applications took a sharp 6.2% dive last week as rising interest rates pushed refinance demand lower, according to the latest data from the Mortgage Bankers Association.

In a report released Wednesday, the MBA said its Market Composite Index—a key measure of mortgage loan application volume—dropped 6.2% on a seasonally adjusted basis for the week ending March 14. On an unadjusted basis, the index was down 6%.

All eyes are now on the Federal Reserve's policy announcement later on Wednesday, which could set the tone for interest rates and housing affordability in the months ahead.

Why Did Mortgage Applications Fall?

The primary driver behind the decline was a jump in mortgage rates. After nine consecutive weeks of declines, the average 30-year fixed mortgage rate rose to 6.72%, up by 5 basis points from last week.

The MBA's Refinance Index plunged 13% from the prior week, though it remained 70% higher than the same period last year.

Refinancing activity accounted for 42% of total mortgage applications, down from 45.6% the previous week. Adjustable-rate mortgages, which tend to see higher demand when fixed rates rise, made up just 6.7% of all applications.

Despite the broader decline, home purchase applications showed resilience, with the seasonally adjusted Purchase Index edging up 0.1% from the prior week. On an unadjusted basis, purchases rose 1% and were 6% higher than a year ago.

"Mortgage rates increased for the first time in nine weeks, with the 30-year fixed rate rising to 6.72%," said Mike Fratantoni, MBA's SVP and chief economist.

"This increase in rates led to a decrease in refinance volume. However, purchase application volume inched up to its highest level in six weeks, led by a 3% increase in FHA purchase applications."

Fratantoni also highlighted that a growing supply of homes and stable mortgage rates have supported activity in the spring homebuying season.

Fed Decision Could Shape Housing Market Outlook

The Federal Reserve is set to announce its latest interest rate decision Wednesday, with markets widely expecting the central bank to maintain its benchmark rate in the 4.25%-4.5% range.

Investors will closely watch Fed Chair Jerome Powell's comments for clues on the path of future rate cuts, particularly as policymakers release their updated economic projections, known as the “dot plot.”

In December, the Fed had already revised its inflation projections higher while scaling back expected rate cuts for 2025 from four to two. With persistent inflationary pressures—including potential price increases due to tariffs under a Trump administration—there is speculation that the Fed may further adjust its inflation outlook.

The bond market remains steady ahead of the announcement. The yield on 30-year U.S. Treasury bonds held at 4.59%, while the iShares Residential and Multisector Real Estate ETF REZ was up 0.1% in premarket trading Wednesday. Year to date, the fund has gained over 5%. Meanwhile, the Real Estate Select Sector SPDR Fund XLRE was flat.

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