Mortgage applications hit the lowest level since 1997 as key rate climbs to 7.14%

• Mortgage applications dropped to the weakest level since 1997, Mortgage Bankers Association data shows.
• The 30-year fixed rate climbed last week to 7.14%, near its highest mark since 2001.

Mortgage applications slipped to a 25-year low as borrowing costs continued to climb, according to data from the Mortgage Bankers Association released Wednesday.

For the week ending November 4, the MBA's overall activity index dipped 0.1% to the lowest since 1997 as refinancing demand fell 4% to a 22-year low, while applications to buy a home inched 1.3% higher.

At the same time, the 30-year fixed mortgage rate, the most popular mortgage product, rose to 7.14% last week, near its highest mark since 2001, from 7.06% in the prior week.

"Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation. The 30-year fixed rate remained above 7% for the third consecutive week, with increases for most loan types," said Joel Kan, MBA's deputy chief economist.

The housing market is particularly sensitive to changes in the Federal Reserve's interest rates, and with policymakers embarking on a hawkish campaign this year, housing has become more and more unaffordable.

By raising interest rates — and thus pushing mortgage rates higher — the Fed aims to cool down the economy by making Americans tighten their belts.

On November 2, the Fed made its fourth consecutive 75-basis-point rate hike, and signaled that a pause remains far down the line.

As housing becomes more costly, homebuyers end up seeking out cheaper financing options, such as adjustable-rate loans. The five-year adjustable mortgage rate climbed to 5.87% last week, the highest since data began in 2011.

Activity in the US housing market is already seeing a correction, Comerica chief economist Bill Adams wrote in a note last month. He anticipates price declines to be steeper in more expensive cities, and predicts that sales of new homes will sink 25% next year.