Mortgage rates last week hit their highest level since the end of May, which in turn weighed on mortgage demand.

Total mortgage application volume dropped 4.4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand is now at its lowest level in a month.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.85% from 6.75%, with points rising to 0.65 from 0.64 (including the origination fee) for loans with a 20% down payment.

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While that was the average rate for the week, a separate survey from Mortgage News Daily showed the rate crossed over 7% last Thursday. It has remained above that mark since then, rising to 7.08% on Tuesday of this week.

As a result, mortgage demand to purchase a home, which had been rising for three straight weeks, dropped 5% for the week and was 22% lower than the same week one year ago.

“Rates are still over a percentage point higher than a year ago, and housing affordability is still a challenge in many parts of the country,” wrote Joel Kan, MBA’s deputy chief economist, in a release. “However, the average loan size for a purchase application declined to $423,500 — its lowest level since January 2023.”

The drop in loan size, according to Kan, was likely driven by a decline in homebuying in some high-price markets and more activity in some of the lower price tiers.

Applications to refinance a home loan fell 4% for the week and were 30% lower than the same week one year ago. As the summer progresses, the annual comparison is likely to shrink, as last summer was when mortgage rates shot significantly higher for the first time since before the Covid pandemic, and refinance demand consequently fell off its high cliff.