Mortgage Applications Drop Amid High Interest Rates and Affordability Concerns

A sold sign is shown in front of a home in Surfside, Fla., on Sept. 20, 2021. (AP Photo/Wilfredo Lee)

Mortgage applications in the week ending May 27 declined to their lowest level in more than three years, according to the Mortgage Bankers Association (MBA).

The Market Composite Index, a measure of mortgage loan application volume, fell by 2.3 percent on a seasonally adjusted basis for the May 27 week compared to the week prior, a June 1 MBA press release said. The seasonally adjusted mortgage Purchase Index declined by 1 percent for the week. The unadjusted Purchase Index fell by 2 percent from the previous week and was 14 percent lower when compared to the same week a year ago.

“Mortgage rates fell for the fourth time in five weeks, as concerns of weaker economic growth and the recent stock market sell-off drove Treasury yields lower,” said Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting.

“Mortgage applications decreased to the lowest level since December 2018, as the purchase market continues to struggle with supply and affordability challenges.”

Though mortgage rates have decreased on a weekly basis, they continued to remain at high levels.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $647,200 or less was 5.33 percent, for conforming loan balances greater than $647,200 was 4.93 percent, and for those backed by the FHA was 5.20 percent.

The average contract interest rate for 15-year fixed-rate mortgages was 4.59 percent, while the rates for 5/1 adjustable-rate mortgages were 4.46 percent.

According to data from the Federal Reserve Bank of St. Louis, the average interest rate for 30-year fixed-rate mortgages climbed two percentage points in a matter of just five months. On Dec. 30, the rate was 3.11 percent. As of May 26, the rate had climbed to 5.10 percent.

Prospective home buyers are struggling to find affordable homes. In the first quarter of 2022, only 59.6 percent of new and existing homes were affordable to American families earning a median income of $90,000, based on data from the National Association of Home Builders (NAHB).

A year ago, 25 percent of new home sales were priced below $300,000. But in April, this proportion fell to just 10 percent.

The median sales price of a new home rose to $450,600 in April, up from $435,000 in March and higher by 19 percent compared to April 2021.

Amid affordability concerns and high interest rates, sales of newly built single-family homes declined in April.

New home sales were down 26.9 percent in April 2022 compared to the same month a year ago, according to the Department of Housing and Urban Development and the U.S. Census Bureau.

Home prices are due to fall soon. “Sky-rocketing house prices are set to come back to earth as higher rates crush affordability,” Mark Zandi, chief economist at Moody’s Analytics, said on May 31.

“Nationwide this means flat prices for a while, barring a recession. The most juiced-up markets will likely experience declines.”