Mortgage applications plunge to 22-year low as interest rates double

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Mortgage applications plunge to 22-year low as interest rates double

Demand for home mortgages has hit its lowest level in 22 years as interest rates soar and sales of existing homes plunge.The Federal Reserve's move to

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Demand for home mortgages has hit its lowest level in 22 years as interest rates soar and sales of existing homes plunge.

The Federal Reserve‘s move to fight inflation by raising interest rates has has quickly put a damper on home sales — yet home prices are at all-time highs in spite of the slowdown, according to data released on Wednesday.

The national median home price jumped 13.4 percent in June from a year earlier to $416,000, the highest on record, according to industry data. 

At the same time, the average contract rate for a 30-year fixed-rate mortgage hit 5.82 percent, roughly double the recent lows seen in January. 

Amid rising home prices and interest rates, mortgage demand fell 6 percent last week from the week prior, according to a report from the Mortgage Bankers Association. 

It marked the lowest level for mortgage applications since 2000, said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. 

Average 30 year fixed rate mortgages (blue) since 2000 are seen compared to the Federal Reserve's benchmark interest rates (red)

Average 30 year fixed rate mortgages (blue) since 2000 are seen compared to the Federal Reserve's benchmark interest rates (red)

Average 30 year fixed rate mortgages (blue) since 2000 are seen compared to the Federal Reserve’s benchmark interest rates (red)

Sales of existing homes plunged 14% in June from a year ago in broad slowdown in the housing market as high interest rates and home prices discourage buyers

Sales of existing homes plunged 14% in June from a year ago in broad slowdown in the housing market as high interest rates and home prices discourage buyers

Sales of existing homes plunged 14% in June from a year ago in broad slowdown in the housing market as high interest rates and home prices discourage buyers

Kan said that the key factors weighing on homebuyer demand are ‘the weakening economic outlook, high inflation, and persistent affordability challenges.’ 

‘The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs,’ he added.

Meanwhile, sales of previously occupied U.S. homes slowed for the fifth consecutive month in June as higher mortgage rates and rising prices kept many home hunters on the sidelines.

Existing home sales fell 5.4 percent last month from May to a seasonally adjusted annual rate of 5.12 million, the National Association of Realtors said Wednesday.

That was lower than the 5.37 million home sales pace economists were expecting, according to FactSet. Existing home sales fell 14.2 percent from a year ago.

Even as home sales slowed, home prices kept climbing in June. The national median home price jumped 13.4 percent in June from a year earlier to $416,000. 

The national median home price jumped 13.4 percent in June from a year earlier to $416,000, an all-time high on records dating back to 1999

The national median home price jumped 13.4 percent in June from a year earlier to $416,000, an all-time high on records dating back to 1999

The national median home price jumped 13.4 percent in June from a year earlier to $416,000, an all-time high on records dating back to 1999

That’s an all-time high according to data going back to 1999, NAR said. Despite the increase, home prices are not climbing as much as they were earlier this year.

‘With each passing month it appears price appreciation is less strong than earlier months,’ said Lawrence Yun, NAR´s chief economist.

After climbing to a 6.49 million annual rate in January, sales have fallen to the slowest pace since June 2020, near the start of the pandemic, when they were running at an annualized rate of 4.77 million homes. 

Excluding the pandemic-related slowdown, sales in June were running at the slowest pace since January 2019.

The June sales report is the late evidence that the housing market, a key driver of economic growth, is slowing as homebuyers grapple with sharply higher mortgage rates than a year ago.

‘A combination of higher prices and higher mortgage rates clearly has shifted the dynamics in the housing market,’ Yun said. ‘Home sales will only begin to stabilize once mortgage rates begin to stabilize.’

Mortgage rates have been climbing in response to a sharp increase in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve raises its benchmark rate in a bid to quell the highest inflation in decades.

The number of home sales less than $500,000, the range most often sought by first-time buyers, has decreased at a faster rate than more expensive houses

The number of home sales less than $500,000, the range most often sought by first-time buyers, has decreased at a faster rate than more expensive houses

The number of home sales less than $500,000, the range most often sought by first-time buyers, has decreased at a faster rate than more expensive houses

Even with higher mortgage rates straining affordability, homes that sold didn´t stay on the market for long. 

On average, homes sold in just 14 days of hitting the market last month, the fastest sales pace tracked by the NAR. It was 16 days in May. 

Before the pandemic, homes typically sold more than 30 days after being listed for sale.

House hunters able to navigate the impact of higher mortgage rates had a wider selection of homes to choose from last month, at least. 

The number of properties for sale jumped 9.6 percent from May to 1.26 million, and rose 2.4 percent from June last year – the first annual increase in three years, Yun said.

Still, at the current sales pace, the level of for-sale properties amounts to a 3-month supply, the NAR said. 

That’s up from 2.6 months in May, and 2.5 months a year ago, but remains far short of the 5- to 6-month supply that reflects a more balanced market between buyers and sellers.

Despite the still-tight supply of homes for sale, rising mortgage rates and prices, first-time buyers accounted for 30 percent of sales last month, NAR said. 

That’s up from 27 percent in May, but still low by historical standards, when first-time buyers made up as much as 40 percent or more of transactions.

Real estate investors and other buyers able to buy a home with just cash, sidestepping the need to rely on financing, accounted for 25 percent of all sales last month, NAR said.

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