Mortgage Demand Slumps to 22-year Low in Sign of Housing Market Chop

A for sale sign is displayed in front of a house in Washington, on March 14, 2022. (Stefani Reynolds/AFP via Getty Images)

A measure of mortgage demand plunged to its lowest level in 22 years last week, new data from the Mortgage Bankers Association (MBA) showed, delivering a fresh sign that the red-hot housing market may be losing some steam.

Total mortgage application volume fell 6.5 percent week-over-week, according to the MBA’s seasonally-adjusted Market Composite Index, released June 8.

That’s the biggest weekly drop in the measure in over two decades.

“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years,” Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said in a statement.

Refinance demand, one of the components of the index, fell 6 percent week-over-week, while applications for a mortgage to buy a home, another of its constituents, dropped 7 percent last week.

The softer data comes as the rate for the benchmark 30-year fixed mortgage edged up to 5.40 percent after dropping for three consecutive weeks.

“While rates were still lower than they were four weeks ago, they remain high enough to still suppress refinance activity,” Kan said.

Persistently low housing inventory has kept upward pressure on house prices, while rising mortgage rates have caused payments to swell, hurting affordability.

“These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan said.

Despite some week-to-week variability, mortgage rates have been on a tear as the Federal Reserve has embarked on a path of monetary tightening away from the pandemic-era policies of easy money.

Last fall, the rate on the benchmark 30-year fixed mortgage was less than 3 percent, with ultra-low rates driving a surge in demand and sending home prices soaring.

But rising rates combined with sky-high prices have dampened demand.

A measure of U.S. home sales based on signed contracts dropped to a 2-year low in April, according to the National Association of Realtors (NAR), marking the sixth consecutive month that the agency’s Pending Home Sales Index has fallen.

“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” Lawrence Yun, NAR’s chief economist, said in a statement.

Yun added that rising mortgage rates have bumped up the cost of buying a home by over 25 percent compared to a year ago.

NAR predicts that existing-home sales will drop by 9 percent for all of 2022 and home price appreciation will ease to 5 percent by the end of the year.

While housing stock has been tight, there are signs that inventories are beginning to recover, offering a glimmer of hope for prospective homebuyers.

Mike Simonsen, co-founder and CEO of Altos Research, a real estate research and insights firm, said in a recent blog post that he sees the housing market shifting and that sellers are beginning to cut prices.

“The percent of homes on the market that have had asking price reductions is up to 24.1 percent this week, that’s the highest level of 2022,” he wrote in the June 6 post.

“The big trend right now is price reductions,” he added.

Other recent data suggest a softer patch ahead for the U.S. housing market.

New home sales fell over 16 percent from March to April, while single-family building permits, a forward-looking indicator, have dropped to a seven-month low.