Mortgage demand tumbled again last week amid stubbornly high mortgage rates, which have depressed the housing market and caused pain for homebuyers.
Mortgage loan application volume decreased by 0.7% last week on a seasonally adjusted basis, according to a report Wednesday from the Mortgage Bankers Association.
The volume of refinances dropped by 2% during that same time, according to the group’s weekly survey, and has plunged 9% from a year ago.
The declining mortgage demand comes even as mortgage rates moderated a bit last week, which typically boosts demand. As of Wednesday, the average rate on a 30-year fixed-rate mortgage has soared to 6.91%, according to Mortgage News Daily. At the end of last month, mortgage rates had risen above 7.12%.
“Mortgage application activity was muted last week despite slightly lower mortgage rates,” said Joel Kan, the MBA’s vice president and deputy chief economist. “Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market.”
“Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6 percent by the end of the year,” he added.
The housing market has been in flux for nearly two years since the Federal Reserve began raising interest rates. Interest rates are now the highest they have been since before the Great Recession, causing mortgage rates to soar to highs not seen since the turn of the century.
Mortgage rates topped out at over 8% in October but have since been falling as investors began to be convinced that the Fed would soon pivot and start cutting rates.
Because mortgage rates were so low during most of the pandemic, people were able to lock in historic rates. So now, as mortgage rates climb, mortgage demand is lower because people are holding on to their existing homes. This has put more pressure on new home sales and the housing market more generally.
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New home sales in February fell 0.3% from January to 662,000. Nevertheless, the number of new home sales is nearly 6% higher than it was in February of last year, in part because the inventory of pre-owned homes is so low that buyers have been forced into the market for new stock.
Meanwhile, existing home sales are at a seasonally adjusted annual rate of 4.38 million, down 3.3% from last year and down about 35% from their pandemic-era peak. In October, existing home sales dropped to the lowest level in more than a decade.