Mortgage demand at its lowest in almost 30 years.
Mortgage Demand Hits 28-Year Low as Homebuyers Shy Away from Rising Rates
Mortgage demand has plummeted to its lowest level in nearly three decades as homebuyers steer clear of soaring mortgage rates that haven’t been seen since the turn of the century.
According to a report from the Mortgage Bankers Association, mortgage loan application volume dropped by 4.2% last week compared to the previous week. Refinances also saw a decline of 3% during the same period, marking a 35% decrease from last year.
The average rate on a 30-year fixed-rate mortgage has skyrocketed to 7.49%, a nearly 0.5 percentage point increase in just one month. This is the highest rate since November 2000, causing homebuyers to withdraw from the market due to the elevated rate environment and diminished purchasing power.
Housing Affordability Challenges
Housing affordability has become a major obstacle for potential homebuyers due to the unique dynamics in the housing market.
During the pandemic, the Federal Reserve drastically reduced interest rates to near zero, resulting in historically low mortgage rates. This led to a surge in demand as homebuyers rushed to secure these ultra-low rates, driving up home prices.
However, when the Fed began raising rates in March of last year, mortgage rates started to climb, causing buyers to step back and resulting in a decline in housing prices. But now, with mortgage rates surpassing 7%, a new dynamic has emerged, reigniting the market.
Many homeowners who locked in sub-3% mortgages are reluctant to sell their properties and lose their advantageous rates. As a result, housing supply has dwindled, putting pressure on new home sales, which have consequently increased.
New home sales rose 4.4% from June to July, reaching a seasonally adjusted annual rate of 714,000. Despite the high mortgage rates, the median sales price for a new home actually increased to $436,700 in July.
On the other hand, existing home sales experienced a 2.2% decline from June to July, with a seasonally adjusted rate of 4.07 million, according to the National Association of Realtors.
Given the combination of high mortgage rates and limited existing homes on the market, homebuyers are now getting smaller houses for the same amount of money compared to just a year or two ago.
“Two factors are driving current sales activity — inventory availability and mortgage rates,” said NAR chief economist Lawrence Yun. “Unfortunately, both have been unfavorable to buyers.”
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