According to the Mortgage Bankers Association (MBA), total demand for new mortgages dropped by 4.2% in the third week of August, reaching a 28-year low. This occurs at the same time that mortgage interest rates reach a 23-year high, making it harder for many prospective home buyers to purchase homes. This is, in part, the result of aggressive economic policy from the Federal Reserve, which has continued to raise interest rates to combat inflation.
Mortgage Demand At a 28-Year Low
According to the MBA, applications for mortgages to purchase a new home dropped by about 5% in the third week of August, which is about 30% lower than it was the same time last year. This is the lowest that mortgage demand has been since December 1995, 28 years ago. Applications for refinancing were also down significantly, falling 3% for the week and 35% compared to the same time last year.
Interest Rates at a 23-Year High
This decline in mortgage demand has been largely attributed to a dramatic increase in the mortgage interest rate, which reached a high of 7.31% for 30-year fixed interest mortgages with conforming loan balances. This is the highest that this interest rate has been since 2000. Adjustable rate mortgages also reached a high of 7.6% during the same period, the highest it has been in five months.
Explaining the State of the Market
There are two primary factors attributed to the sky-high interest rates and rock-bottom mortgage demand. The first is a continuing effort by the Federal Reserve to combat inflation, which has kept interest rates high as a result. The second is an extremely low amount of available inventory, meaning there are few houses to buy even for those with the interest and money to pay for it.
The Impact on the Real Estate Market
The result of these factors is that buyers are struggling to find homes within the realm of affordability. Even where homes are within their price range, the high interest rates may make it difficult to obtain a mortgage with manageable payments. People seeking to refinance their mortgages are also in a difficult spot, as many people who might want to refinance have mortgages with lower interest rates than what they might refinance to.
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