Decline in Mortgage Demand Signals Slowdown in Housing Market

# Decline in Mortgage Demand Signals Slowdown in Housing Market

Despite a small decrease in mortgage rates, the housing market continues to show signs of weakness, as demand for mortgages reaches its lowest point in over two decades. According to the Mortgage Bankers Association (MBA), both purchase applications and refinancing activity have fallen, leading to a decline in the overall market composite index.

Mortgage Demand at Lowest Level Since 1996

Homebuyers are increasingly hesitant to enter the market, with demand for mortgages hitting its lowest level since December 1996. Additionally, purchase applications have dropped to a 28-year low, even though rates decreased by 10 basis points over the past week. The average contract rate for a 30-year mortgage fell to 7.21%.

Diminished Purchase and Refinancing Activity

Both purchase applications and refinancing activity have experienced significant declines. The purchase index, which measures mortgage applications for home purchases, has decreased by 2.1% compared to the previous week. Homeowners looking to refinance have also shown reluctance, with the refinance index falling by 4.7%.

Mortgage Rates Decrease Modestly

For homes sold at or below $726,200, the average contract rate for a 30-year mortgage reached 7.21%, down from 7.31% the previous week. Likewise, jumbo loans for higher-priced homes saw a slight decrease in rates, going from 7.28% to 7.21%.

The downward trend in mortgage demand indicates a slowdown in the housing market as buyers and homeowners adopt a more cautious approach. These figures suggest that potential homebuyers are choosing to wait on the sidelines, creating a challenging environment for both sellers and lenders.

# Mortgage Rates Continue to Drop The average rate for a 30-year mortgage backed by the Federal Housing Administration has fallen slightly from 7.1% to 7.03%. Similarly, the 15-year mortgage rate has dropped from 6.72% to 6.66% in the previous week. Additionally, adjustable-rate mortgages now have a rate of 6.33%, down from last week's 6.48%.

Impact on Home Buyers

Not only are home buyers grappling with high rates, but they are also contending with low inventory levels, which may have contributed to the decline in purchase applications at the end of August. The combination of high rates and escalating home prices has resulted in housing affordability dropping to its lowest level since 1984, as reported separately by Black Knight.

Furthermore, high rates pose a challenge to home buyers' budgets. According to a recent Redfin report, a surge in the 30-year mortgage rate to 7.4% this August, compared to 5.5% last year, equates to a potential buyer's budget decreasing from $500,000 to $429,000.

Expert Opinion

Joel Kan, Deputy Chief Economist and Vice President at the MBA, commented on the situation, stating that although the 30-year fixed mortgage rate decreased to 7.21% last week, rates remain over a full percentage point higher than this time last year. Despite mixed data on the economy's health and signs of a cooling job market, the impact on mortgage rates persists.

Market Response

In early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) exceeded 4.2%.