The Federal Reserve’s interest rate hikes are starting to make a dent in the U.S.’s hot housing market.

What’s happening: As rising rates have pushed home prices even higher, mortgage applications dropped 12% last week compared to the week prior and were 15% lower than the same week one year ago, according to the latest Mortgage Bankers Association’s weekly mortgage applications survey released Wednesday.

  • It’s the first time mortgage applications have decreased in three weeks. Even though mortgage rates dipped slightly last week, they remain over two percentage points higher than a year ago and are nearing the highest levels since 2009.

What they’re saying: “Purchase applications fell 12% last week, as prospective homebuyers have been put off by higher rates and worsening affordability conditions,” said Joel Kan, Mortgage Bankers Association’s associate vice president of economic and industry forecasting.

  • Economic uncertainty and recent stock market volatility “may be causing some households to delay their home search,” Kan said.
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Refinancing is down, too: The high rates are also impacting homeowners’ refinance prospects. The Mortgage Bankers Association’s refinance index dropped 10% from the previous week and was 76% lower than the same week last year.

  • “For borrowers looking to refinance, the current level of rates continues to be a significant disincentive,” Kan said.

Housing market predictions: Kan said the latest Mortgage Bankers Associations weekly survey results were consistent with the association’s May forecast released earlier this week.

That forecast predicts “fewer home sales and mortgage originations in 2022 compared to a year ago,” Kan said.

The big picture: The Fed hiked interest rates in hopes of combatting inflation, and now they are starting to have a cooling effect on the U.S.’s overheating housing market.

But at the same time, the rate hikes have priced out even more homebuyers and prices continue to escalate — especially in high-demand, high-growth areas like the West.

Here in Utah, local experts have said rising mortgage rates will likely only slow — not stop — housing price increases while pricing out even more potential homebuyers.

Today’s mortgage rate: On Wednesday, the average rate for a 30-year fixed mortgage was 5.4%, which is a decrease of 17 basis points over the last week, according to Bankrate.com.

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