Mortgage Applications Drop Following Rates Hike, Homes Begin Selling Cheaper

A "For Sale" sign is posted outside a residential home in the Queen Anne neighborhood of Seattle, Wash., on May 14, 2021. (Karen Ducey/Reuters)

Applications for mortgages are dropping as mortgage interest rates keep rising while home sellers are lowering their prices as additional supply hits the market, according to multiple reports.

The interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) was 4.90 percent in the week ending April 1, up from 4.80 percent a week ago, an April 6 news release by the Mortgage Bankers Association (MBA) stated.

Rates for those with loan balances greater than $647,200 rose to 4.51 percent from 4.40 percent while 30-year fixed mortgages backed by the FHA saw interest rates rise from 4.66 percent to 4.90 percent.

Mortgage application loan volume fell by 6 percent from the earlier week on an unadjusted basis. When compared to the same week a year back, volume is down by 41 percent.

“As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019. The refinance share of all applications dipped to 38.8 percent, down from 51 percent a year ago,” said Joel Kan, associate vice president of Economic and Industry Forecasting at MBA.

Meanwhile, the number of new home listings rose by 8 percent on a yearly basis for the week ending April 2, according to research from Realtor. The increase came after four weeks of decline.

Though the total amount of active inventory for sale is still down by 13 percent when compared to a year back, it is “taking a big step closer” to last year’s level thanks to the increase in new listings.

As mortgage interest rises and more supply enters the housing market, home sellers are beginning to lower their prices. In the four weeks ending April 3, 12 percent of homes for sale dropped their prices, up from 9 percent a year earlier, according to an April 7 press release by real estate brokerage firm Redfin. This is the highest level since early December.

“Price drops are still rare, but the fact that they are becoming more frequent is one clear sign that the housing market is cooling,” said Daryl Fairweather, Redfin’s chief economist.

“It goes to show that there’s a limit to sellers’ power. There is still way more demand than supply, and buyers are still sweating, but sellers can no longer overprice their home and still expect buyers to clamor at their door.”

American pessimism regarding the direction of mortgage rates hit a high according to a recent survey published by Fannie Mae on April 7.

Over the next 12 months, mortgage rates are predicted to go up, by 69 percent of survey respondents. Meanwhile, 48 percent expect home prices to shoot up during this period. Only 24 percent of respondents believed this is a good time to purchase a home.