Demand for mortgages falls to its lowest level in 28 years in the US

Mortgages falls
  • The demand for mortgages has fallen to its lowest level in 28 years due to an increase in average interest rates of 6.71%.
  • Rising interest rates have discouraged buyers, negatively affecting the housing market during the spring home-buying season.
  • Signs of persistent inflation have led the Federal Reserve to raise interest rates, which has impacted the housing sector and caused existing home sales to decline.

The housing market is undergoing a significant slowdown, as demand for mortgages has reached its lowest level in 28 years. Average interest rates have risen to 6.71%, which is a worrying sign for the housing market, especially as the key spring home buying season approaches. Mortgage application volume has dropped sharply, with the Mortgage Bankers Association (MBA) Purchase Index indicating a 5.6% decline from the prior week and a staggering 44% drop from a year ago.

The increase in mortgage rates is probably responsible for the decrease in demand. These rates have been rising for three straight weeks, again approaching the 20-year high reached the previous fall. This trend is discouraging potential buyers, leading them to postpone their home-buying plans.

The rebound in mortgage interest rates is due to signs of persistent inflation, which has led the Federal Reserve to raise its benchmark interest rate at a rapid pace. Although rates had begun to decline late last year due to a drop in inflation, stronger-than-expected readings in inflation increases in employment and consumer spending have led investors to bet that the Fed will continue to raise interest rates through the summer. As a result, the real estate sector, highly sensitive to interest rates, has been negatively affected.

The impact of the increase in mortgage rates is evident in the existing home sales data, which shows a 36.9% decrease from the previous year. The situation is more pronounced in the west, where sales have decreased by 42.4%. Median home prices have also been affected, with the most expensive homes in the West priced at $525,200, a 4.6% decrease from the prior year.

Interestingly, the percentage of home purchases made with cash has risen to its highest level in nine years in 2022, despite the overall market decline. Individual homebuyers, cashing in on the proceeds from property sales in expensive markets, have fueled this trend, especially in cities in the Southeast, where more than half of transactions have been in cash