Mortgage applications have taken another hit as rates climb to their highest point so far in 2025. After a brief dip earlier this year, the latest spike has rattled buyers and put additional pressure on an already cooling housing market. According to the Mortgage Bankers Association, total application volume dropped 5.1% last week, marking the third straight decline.
Rates Hit 6.86%, Highest Since Late 2023
The average 30-year fixed mortgage rate has now climbed to 6.86%, according to Freddie Mac’s Primary Mortgage Market Survey. That’s the highest level seen since December 2023 and a sharp contrast to the low-6% rates many buyers were hoping would return this year.
With inflation staying stubbornly high and the Fed signaling it won’t rush to cut rates, many lenders are pricing in more long-term volatility. That’s led to fewer refinance applications and cautious behavior from first-time buyers, many of whom are already priced out of the market.
Homebuyers Hit Pause
Demand from buyers has slowed across multiple regions, especially in areas where home prices remain elevated. The combination of high interest rates and limited inventory continues to stretch affordability. Redfin reports that pending U.S. home sales fell 3.4% year over year during the four weeks ending May 11, reaching their lowest level on record for this time of year aside from 2020. Redfin’s housing update also notes that the total number of homes for sale rose 14.3% year over year to their highest level in nearly five years.
Refinancing Hits a Wall
Refinance applications have nearly vanished. The MBA noted a 5% decline in refinance volume week-over-week. Most homeowners are locked into lower rates and see little incentive to refinance at current levels.
This slowdown not only affects lenders, but also appraisers, title companies, and real estate agents who rely on transaction volume to drive income. Many in the industry are bracing for a slower summer season unless rates retreat soon.
What’s Next for Borrowers?
Buyers sitting on the sidelines are now forced to choose between stretching budgets or continuing to wait it out. And with inflation remaining sticky, there’s no clear timeline for meaningful rate relief. The Fed has hinted that cuts may not happen until late 2025, depending on economic trends and consumer spending data.
For those still looking to buy this year, it may come down to locking in a rate now and refinancing later—if rates eventually drop. Others are shifting focus to smaller homes or lower-cost markets to make the math work.
Alexander Clark is a financial writer with a knack for breaking down complex market trends and economic shifts. As a contributor to The Daily Overview, he offers readers clear, insightful analysis on everything from market movements to personal finance strategies. With a keen eye for detail and a passion for keeping up with the fast-paced world of finance, Alexander strives to make financial news accessible and engaging for everyone.
