Despite the fact that mortgage interest rates have been falling, mortgage demand has flattened out, a sign of serious affordability issues in the market. These issues were reflected in both the stagnating demand for new mortgages, as well as a slight decline in refinancing applications. These issues stem from high home prices relative to the average household income, which has fallen behind in the past few years.
Mortgage Demand Flattens Out
Overall demand for mortgages fell by about 0.7% in the last week of March, effectively flattening out after several weeks of slight increases. This occurred despite the fact that interest rates fell slightly, declining from 6.97% to 6.93% for 30-year fixed rate mortgages with conforming loan balances. This is somewhat alarming given that the spring housing market is here, which is normally a busy time for new mortgage applications.
Refinancing Takes a Hit
Demand for refinancing applications also fell two percent in the same time period, falling to about 9% lower than what it was the same time last year. This is due to the fact that mortgage interest rates are still about half a percentage point higher than they were last year, making refinancing unappealing to many existing homeowners. As a result, many homeowners are preferring to stick with their existing mortgage rather than attempt to refinance for potentially worse terms.
Home Prices Weigh Down the Market
The sticking point for mortgage demand seems to be the lack of available affordable housing. Home prices first exceeded what the average household could afford back in 2021, and the problem has only become more acute since then. However, the cost of housing is unlikely to fall in the near future, as low inventory has ensured that nearly every property is the subject of intense bidding.
Potential Signs of Improvement
That being said, not all of the news is bad. With interest rates beginning to decline somewhat, people may become more interested in either getting a new mortgage or refinancing their existing mortgage. More inventory is also coming onto the market, helping to alleviate the pressures of relatively high demand. However, so long as housing prices remain out of reach of the average homeowner, mortgage demand will likely remain relatively low.
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