The housing market has been impacted by a surge in mortgage interest rates, which have reached levels not seen since 2002. As a result, mortgage demand has decreased significantly, with mortgage applications hitting a 27-year low. This trend suggests a significant shift in the real estate industry.
According to the data published by the Mortgage Bankers Association on Sep 27, 2023, last week saw a 1.3% decrease in total mortgage application volume compared to the previous week. Shockingly, this represents a 25.5% drop from the same week last year. The data also indicates that the average rate for a 30-year mortgage loan has risen to 7.41%, up from 7.31% the previous week. This marks the highest level since December 2000. To provide a clearer picture, these rates were only around 5.65% a year ago.
Joel Kan, the Deputy Chief Economist at Mortgage Bankers Association, pointed out that these mortgage rates have reached their highest point in over 20 years. This increase is closely tied to the rising Treasury yields observed late last week. He added, “Based on FOMC’s most recent projections, rates are expected to be higher for longer, which drove the increase in Treasury yields. Overall, applications declined, as both prospective homebuyers and homeowners continue to feel the impact of these elevated rates.”
Applications for home purchase loans experienced a 2% decline last week, and they have significantly dropped by 27% compared to the previous year. Moreover, refinancing demand also continued to decrease, as there was a 1% dip in applications. Looking at the bigger picture, refinance applications are now 21% lower than a year ago.
Buying a home nowadays is tough due to several factors, such as historically limited housing supply, high-interest rates, and increased prices. Even though high-interest rates generally lead to a drop in sales, the prices keep rising due to the high demand, posing a challenge for buyers. Moreover, new home sales decreased by 9% in August, indicating the complicated situation in the current housing market.