Government-backed loans fuel demand as mortgage rates hit multi-month highs
Mortgage demand saw a modest boost last week, with applications rising 1.7% despite the continued climb in interest rates, according to the Mortgage Bankers Association (MBA).
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) rose to 6.90%, marking the highest level since July 2024. Despite this uptick, demand for FHA and VA loan products fueled application activity, helping to offset declines in other areas.
“Mortgage rates moved higher for the fourth consecutive week, with the 30-year fixed rate increasing to 6.90%, its highest level since July 2024,” said MBA deputy chief economist Joel Kan. “However, even with the uptick in rates, overall mortgage applications increased. The pickup in purchase applications was driven by conventional and FHA loans.”
FHA loans, most popular with first-time buyers, saw a 7% increase in purchase applications. Meanwhile, VA loan applications for refinancing jumped by 10%, driving an overall 2% increase in the refinance index.
Purchase applications saw a 2% seasonally adjusted increase from the previous week but were down 1% compared to the same week last year. On an unadjusted basis, the purchase index declined 3% week over week.
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Kan pointed out that improving inventory conditions in certain markets have given some buyers a window to act despite the higher rate environment.
“For-sale inventory has loosened in some markets and some potential buyers have been able to take advantage of increasing supply and lower FHA rates which were down slightly in comparison to the conforming 30-year fixed rate,” Kan said. “Refinance activity rose slightly last week, driven largely by a 10% increase in VA applications.”
FHA loans rose to 16.6% of total applications, up from 16.0% the previous week, and VA loans increased to 13.6%, up from 13.3%. USDA loans, however, dipped slightly, representing 0.4% of total applications, down from 0.5% the prior week.
The refinance share of mortgage activity also edged higher, rising to 41.0% of total applications from 39.9% the week before.
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