Home-purchase applications tumbled last week to the lowest level in nearly three decades as high interest rates and limited availability weighed on demand.
A key measure of home-purchase applications tumbled last week to a nearly three-decade low as consumer demand cooled sharply amid a recent surge in mortgage rates.
The Mortgage Bankers Association's index of mortgage applications fell 6% last week to the lowest level since 1996, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan climbed for the fourth straight week to 7.53%, the highest level since 2000. By comparison, just one year ago, rates hovered around 5.65%.
"Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields," said Joel Kan, MBA’s deputy chief economist. "As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996."
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The steep rates continued to weigh heavily on housing demand, with applications for a mortgage to purchase a home also tumbling 6% for the week. Application volume is down 22% compared with the same time last year.
Demand for refinancing also fell further last week, sliding another 7%, according to the survey. Compared with the same time last year, refinance applications are down 11%.
"The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market," Kan said.
EXISTING HOME SALES CONTINUE TO SLIDE AMID SUPPLY SHORTAGE, STEEP MORTGAGE RATES
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers already lifted the benchmark federal funds rate 11 consecutive times as they try to crush stubborn inflation and slow the economy.
Officials signaled during their policy-setting meeting in September that another rate hike is on the table this year – and that rates are likely to remain elevated for some time.
Not only are higher mortgage rates dampening consumer demand, but they are also limiting inventory.
That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
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A recent report from Realtor.com shows that the total number of homes for sale, including homes that were under contract but not yet sold, tumbled by 9.2% in August compared with the same time a year ago.
Available home supply remains down a stunning 45% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.
