Mortgage rates fall for the first time in 2 months, as demand for home loans continues to soften

• Mortgage rates dropped for the first time in two months last week but remain near 20-year highs, according to the Mortgage Bankers Association.
• The average contract interest rate for 30-year fixed mortgages fell to 7.06% in the week ending October 28.

Primary mortgage rates dropped for the first time in two months but with rates still around their highest in 20 years, weekly applications for home loans extended declines, according to a report Wednesday from the Mortgage Bankers Association.

The average contract interest rate for 30-year fixed mortgages for conforming loan balances of $647,200 or less fell to 7.06% in the week ending October 28 from 7.16% a week earlier.

Mortgage rates this year have soared above 7% for the first time since 2002, led by a surge in Treasury yields as the Federal Reserve jacks up borrowing rates to cool down inflation. The Federal Reserve on Wednesday was widely expected to kick up the fed funds rate for the fifth time in 2022, by another 75 basis points.

"The biggest impact of 7.00%+ primary rates is on affordability as monthly [principal and interest] payments for a new loan have increased by over 55% since the beginning of the year, resulting in the marginal borrower being able to buy 35% less house," Scott Buchta, the head of fixed income at Brean Capital, wrote in a note.

Applications for mortgages fell by 0.5% on a seasonally adjusted basis, the MBA said. That marked the sixth consecutive weekly decline. Applications fell 1% on an unadjusted basis.

But there was some movement among homeowners toward refinancing, with applications edging up by 0.2%.

The group's Refinance Index, however, was 85% percent lower than in the same period last year.

Most homeowners are already "locked into significantly lower rates," Joel Kan, MBA's deputy chief economist, said in the industry group's latest survey report.