Mortgage demand continued to crumble last week as mortgage rates climbed to their highest levels since 2010. Total application volume fell 5% last week from the previous week and was nearly half the level a year ago, according to the Mortgage Bankers Association Seasonally Adjusted Index.

The average contract rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) rose last week from 5.13% to 5.20%, with points falling from 0.63 (including the setup fee) to 0.66 for loans with 20% rise deposit. A year ago the interest rate was exactly 200 basis points lower at 3.20%.

“Continued concerns about rapid inflation and tighter US monetary policy have pushed Treasury yields higher and mortgage rates to their highest levels in over a decade, economic and industry forecasts.

With interest rates now rising rapidly after a prolonged period of record lows, very few borrowers can benefit from refinancing. That demand therefore fell another 8% for the week and was 68% lower than the same week a year ago. It marks six consecutive weeks of declines in refinancing. The refinancing share of mortgage activity fell to 35.7% of all applications from 37.1% in the previous week.

Mortgage applications to buy a home fell 3% this week and were 14% lower than the same week a year ago. This annual decline is now beginning to increase as housing becomes even more expensive.

“In a housing market confronted with affordability issues and low inventories, higher interest rates are also causing demand for home purchases to decline or lag. Homebuying activity has been volatile over the past few weeks and has yet to see the typical recovery for this time of year,” Kan adds.

Buyers stuck in the market are now turning more to adjustable rate mortgages, which have a lower interest rate but were shunned as too risky after the last housing crash. The ARM share of applications hit 8.5% last week, its highest level since 2019. ARMs can be fixed for maturities like seven or 10 years and are now being written much more carefully than they used to be.

Mortgage rates continued to rise this week as government bond yields rose. Higher interest rates now appear to be hitting the nation’s homebuilders. A U.S. Census report Tuesday showed a decline in single-family home building permits. These are an indicator for future construction. Builders also reported that they are now seeing much slower buyer traffic to their show homes, likely due to rising mortgage rates.