Demand for mortgages has fallen to a multi-decade low amid rising interest rates that have hit record levels, according to the Mortgage Bankers Association (MBA).
On a yearly basis, purchase and refinance applications are down 38 percent and 86 percent respectively. The decline in mortgage demand has happened as 30-year fixed mortgage interest rates hit 6.94 percent, the highest since 2002, and three percentage points higher than a year back.
“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” Joel Kan, MBA’s vice president and deputy chief economist, said in the release.
“Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates.”
The share of adjustable rate mortgages (ARMs) in total mortgage applications rose to 12.8 percent, the highest since March 2008. ARM loans remain a “viable option” for borrowers looking to cut down their monthly payments, Kan said.
Home Prices Forecast, Sales DroppingIn an Oct. 5 commentary, Wells Fargo economists pointed out that a housing correction is “already under way.” They expect home prices to register a year-over-year decline in 2023, with the national median existing single-family home price projected to decrease by 5.5 percent next year.
“Markets where home prices shot the highest are now vulnerable to a disproportionate swing to the downside, notably in previously white-hot markets in the Mountain West where sales activity has slowed notably,” the commentary said.
Roughly 60,000 home purchase agreements—making up about 17 percent of homes that went under contract—were scrapped last month.
Chicago took the top spot as the slowest housing market in the United States, followed by Lake County also in Illinois; Charleston in South Carolina; Honolulu, Hawaii; and Pittsburgh, Pennsylvania.