Mortgage Demand Falls to 27-Year Low, And Rejections Are on the Rise
October 3, 2023
Mortgage rates continue to climb higher, sending monthly payments surging, which has priced many prospective buyers out of the market, and the few who do still apply are facing higher rejection rates.
The average rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.53% last week, up from 6.75% during the same week last year. Higher rates mean more expensive borrowing for buyers, and many homeowners are locked into much lower rates, so they have little incentive to move.
This has resulted in plummeting mortgage demand. Total demand was down 6% from the week prior, according to the National Association of Realtors, putting total mortgage applications at the lowest level since 1996. Applications to purchase a home fell 6% for the week and were 22% lower than the same week one year ago, while applications for refinancing were down 7% for the week and 11% lower than last year.
A separate report from the Consumer Financial Protection Bureau (CFPB) found that those who do apply are facing higher rejection rates. According to the report, last year, more applicants were denied for having “insufficient income” than at any point since the agency began collecting data. Overall, 9.1% of mortgage applications were denied in 2022, a jump from 8.3% in 2021. Refinance applications were more likely to be denied, with the rejection rate jumping from 14.2% in 2021 to 24.7% in 2022.
The CFPB also reported that the average cost of a monthly mortgage payment increased 46%, to $2,045 in December 2022, from $1,400 in December 2021. Mortgage lenders often use a guideline known as the 28/36 rule, meaning that lenders generally prefer to see a prospective buyer’s mortgage payment, property taxes, and insurance represent less than 28% of monthly income, while all debt payments should be less than 36%. With higher mortgage rates pushing up monthly payments, more prospective buyers would be pushed above these thresholds, and thus are being rejected.