Mortgage Demand Slumps, Rates Rise to Highest Level Since February

The good news for homebuyers is that prices have dropped.

A townhouse for sale in Elkridge, Md., on Sept. 27, 2024. Madalina Vasiliu/The Epoch Times

Demand for mortgages declined last week as interest rates rose to their highest level since February, new industry data show.

The Mortgage Bankers Association announced on May 21 that mortgage applications tumbled by 5.1 percent for the week ending May 16, the sharpest drop in a month. This is down from the previous week’s modest 1.1 percent increase but up by 13 percent from a year ago.

Application volumes for mortgage refinancing also fell by 5 percent.

The average contract interest rate for 30-year fixed-rate mortgages rose by 6 basis points to 6.92 percent, the highest since Feb. 14.

“Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,” Mike Fratantoni, chief economist and senior vice president at the Mortgage Bankers Association, said in a statement.

“Higher rates, including the 30-year fixed rate increasing to 6.92 percent, led to a slowdown across the board.”

Alternative measures for mortgage rates have indicated a tepid jump.

Survey data from Mortgage News Daily suggest the average 30-year mortgage rate is 6.99 percent.

Mortgage rates track the benchmark 10-year Treasury yield, which has climbed by approximately 10 basis points in the past week to about 4.54 percent.

The U.S. government bond market recently digested Moody’s downgrade of the United States’ long-term credit rating. The rating agency lowered the country’s credit score to the second-highest tier, following the other major rating firms, such as Fitch and Standard & Poor’s.

Administration officials, including Treasury Secretary Scott Bessent, have shrugged off Moody’s downgrade.

In an interview with NBC’s “Meet the Press” on May 19, Bessent called it a “lagging indicator” caused by the previous administration’s spending.

Ray Dalio, a billionaire hedge fund manager of Bridgewater Associates, questioned the veracity of the so-called Holy Trinity of rating agencies’ methodology.

“You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt,” Dalio wrote in a May 19 post on social media platform X.

“They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting).”

Investors are also monitoring Congress’s budget bill. Some Republicans have voiced concerns over its effect on the federal deficit, and other GOP lawmakers have demanded larger deductions for state and local taxes.

Home Prices Drop in April: Redfin

U.S. home prices registered a monthly drop for the first time in nearly three years.

According to new data from Redfin, U.S. home prices in April slipped by 0.1 percent, the first month-over-month decline since September 2022. Home prices advanced by 4.1 percent on a year-over-year basis, the lowest annual increase since July 2023.

A home for sale in Austin, Texas, on May 22, 2024. Brandon Bell/Getty Images

Home prices have flatlined amid slowing demand and rising supply, according to Sheharyar Bokhari, a senior economist at Redfin.

“Home prices are flat, and that’s good news for buyers after years of rapid increases,” Bokhari said in the report. “But even with prices softening, affordability remains a major hurdle. Elevated mortgage rates and high prices mean that many buyers are stretching their budgets to make a purchase.”

Looking ahead to the rest of the year, some industry observers anticipate declining home valuations.

Zillow’s latest forecast, released last month, suggests that home prices could slide by 1.9 percent in 2025, down from the previous projection of a 0.6 percent jump.

“The combination of rising available listings and elevated mortgage rates is signaling potential price drops by year’s end,” the report reads.

“With increased supply, buyers are gaining more options and time to decide, while sellers are cutting prices at record levels to attract bids.”

In recent months, housing inventories have improved.

Redfin figures revealed that the supply of homes for sale reached a five-year high in April. Last month, active listings—the total number of homes for sale—climbed by 1.2 percent monthly and surged by nearly 17 percent year over year. Additionally, new listings swelled by 1.3 percent from March to April and increased by 8.6 percent year over year.

In what might be a sign that U.S. real estate is transitioning to a buyer’s market, the typical home sold in April went for approximately 1 percent below its asking price, according to Redfin.

In the first quarter, according to the Federal Reserve Bank of St. Louis, the median sales price of houses sold in the United States was $416,900, an increase of close to 27 percent from the first quarter of 2020.