Mortgage Demand Falls to Lowest Level in Nearly 30 Years
March 7, 2023
Mortgage rates have been moving higher in recent weeks, pushing potential buyers and sellers back out of the markets just as the spring homebuying season is heating up.
Applications for home purchases fell 6% last week from the week prior, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week’s mortgage volume was down 44% from the same week a year prior and now sits at the lowest level in 28 years. Applications to refinance a home loan also fell 6% for the week and are down 74% from the same week last year.
Climbing rates are the primary cause. The average rate for a 30-year fixed mortgage jumped back over 7% last week, the highest level since November. This time last year, rates were roughly 4%.
A retreat in mortgage rates at the start of the year gave some analysts, homebuilders, and real estate agents hope that the recent slowdown in the housing market may be turning around, but a string of stronger-than-expected economic data in recent weeks has strengthened expectations that the Federal Reserve will need to continue raising interest rates to combat inflation.
Higher rates mean more expensive borrowing for prospective buyers. A mortgage rate increase from 6.4% to 7.4% would have the same effect on affordability as a 10% increase in home prices, according to an analysis by First American Financial Corp. It also makes potential sellers less likely to put their homes on the market, as they are locked into mortgage rates much lower than those on offer today.
Some industry analysts are optimistic that a retreat in mortgage rates could bring enough buyers back into the market to salvage the spring buying season–which is key, as 40% of existing-home sales take place between March and June–particularly if the economy is able to avoid a recession.