Mortgage demand fell to a decade low last week, data released Wednesday showed as potential home buyers grapple with rising inflation and rising interest rates.
According to the latest weekly survey by the Mortgage Bankers Association, the volume of mortgage loan applications declined 6.3% for the week ended July 15 compared to a week earlier. Index measuring activity has fallen to its lowest level since 2000.
The survey found that refinance applications also declined by 4% compared to the previous week and an 80% drop compared to the same week.
Joel Kahn, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, said: “Purchasing activity for both traditional and government loans has declined, as a weak economic outlook, high inflation and persistent affordability challenges are impacting buyer demand. Huh.”
“The recent decline in purchase applications aligns with slower home construction activity due to buyer traffic and ongoing construction material shortages and higher costs,” Kahn said.
The MBA’s purchase index, which measures the volume of mortgage applications to buy a home, fell 7% week-on-week and 19% year-on-year.
The decline in mortgage demand coincided with a rise in interest rates, which have nearly doubled since January as the Federal Reserve raised its benchmark rate to combat inflation. While the Fed rate does not directly affect mortgages, all forms of lending are becoming more expensive in anticipation of a tighter economic policy.
The average contract interest rate on 30-year fixed-rate mortgages rose to 5.82% last week from 5.74% last week. The same mortgage had a 3.11% rate during the same week a year ago.
The latest mortgage demand comes days after the National Association of Home Builders/Wells Fargo Housing Market Index reported home builder confidence fell 12 points to 55 in July – its lowest level since May 2020.
As Kahn referenced, rising mortgage rates added to the financial pain for home buyers already facing skyrocketing prices – driving some buyers out of the market altogether.
One economist warned that the housing market could be on the verge of a “recession” due to a confluence of negative trends.
The Fed is hoping to raise interest rates by another three-quarters of a percentage point at a meeting next week after disappointing June inflation data that pushed prices up 9.1%.
Many investors expect the central bank to implement an even faster increase of a full percentage point, although some policymakers have expressed doubts that this will actually happen.