Mortgage Demand Plummets Amid Rising Rates, Sparking Concerns
Recent data indicates a sharp decline in mortgage demand as interest rates continue their upward trajectory. Mortgage application volume fell by 2.7% last week, marking the third consecutive weekly increase in mortgage rates, which have now reached their highest level since November. The average contract interest rate for 30-year fixed-rate mortgages climbed to 7.24% from 7.13%, according to the Mortgage Bankers Association (MBA).
Refinancing applications experienced an even more pronounced drop, decreasing by 6% from the previous week, although they remain 3% higher than the same period a year ago. Purchase applications also saw a decline of 1% last week, translating to a substantial 15% year-over-year decrease.
Strained Affordability Impacts Homebuyers
Soaring interest rates and persistent price increases have significantly impacted prospective homebuyers, as evidenced by the slump in mortgage applications. MBA Deputy Chief Economist Joel Kan attributed the decline in purchase applications to “strained affordability and low supply,” as potential buyers delay their purchasing decisions.
Unlikely Scenario of Housing Market Crash
The plunge in mortgage applications may raise concerns about a potential housing market crash. However, it’s important to note that mortgage applications have been trending downward for much of the past year due to elevated interest rates. Despite this, home prices have remained resilient, continuing to rise regardless of the subdued demand.
According to Zillow’s Home Value Index, U.S. home prices increased by 4.6% from March 2023 to March 2024, primarily driven by the limited inventory of available homes for sale. Home prices also saw a notable 1.1% jump from February to March this year.
Given the disconnect between falling demand and rising home prices, analysts believe that a housing market crash is unlikely in the immediate future. The lack of available homes for sale is expected to continue supporting home prices despite the challenges posed by high interest rates and declining mortgage demand.
