Mortgage Demand Slump Deepens as Rates Climb to Highest Since 2006

Mortgage Demand Slump Deepens as Rates Climb to Highest Since 2006
A 'for sale' sign hangs in front of a home in Miami, Fla., on June 21, 2022. (Joe Raedle/Getty Images)
Bryan Jung

Demand for home loans continues to slump as mortgage rates last week rose to their highest level in almost 21 years.

Mortgage application volumes for a home purchase loan fell 2 percent for the week ending Oct. 7, 39 percent lower than the same week in 2021, according to a report by the Mortgage Bankers Association on Oct. 12.

Application volumes dropped to their slowest pace since December 1999, as the housing market slowed to a crawl.

Refinance volume plunged by 1.8 percent and was down 86 percent compared to a year ago.

The market index last week fell to 214.3, after standing at 686.1 points year over year, according to Marketwatch.

The average contract interest rate on a fixed 30-year mortgage with a conforming loan balance was 6.81 percent in the first week of the fourth quarter, the highest level since 2006.

This is an increase from 6.75 percent the week before.

Moves by Federal Reserve

Mortgage rates have experienced a regular increase across the board, due to the Federal Reserve's move to combat inflation, putting an end to a 2-year purchasing boom.

Fed Chair Jerome Powell said in September that the central bank will continue to hike policy rates further until the markets “go through a correction” and homes become affordable once again.

"He's literally killing my job. Every month he raises rates mortgage applications drop sharply. The average house cost 50% more per month than it did just a few months ago. The average home buyer can no longer afford to buy an average home," tweeted Tim Balogh, a mortgage broker in Georgia lamenting the Fed rate hikes.

The markets are also expecting the Fed to eventually sell the mortgage-backed securities it had purchased to tighten up the economy, but Powell said last month that these sales would not be on the table anytime soon.

Average mortgage rates more than doubled in 2022, adding hundreds of dollars to the price of financing a home in detriment to potential homebuyers.

Despite recent declines, home prices still remain higher than last year.

“Mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for 5-year ARM loans,” said Mike Fratantoni, the MBA's senior vice president and chief economist, in a statement, adding that "the adjustable-rate mortgage, or ARM share of applications remained quite high at 11.7 percent – just below last week’s level.”

Meanwhile, the American labor market added 263,000 jobs last month, according to the Labor Department, as the unemployment rate fell to 3.5 percent.

Wage growth slowed down in September as average hourly earnings rose by 0.3 percent.

“The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand,” noted Fratantoni.

“However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.”

The widely expected Freddie Mac survey which gauges the average 30-year mortgage rate this week is expected to be released on Oct. 13, the rate was recorded at 6.66 percent last week.
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.