The U.S. housing market is experiencing a familiar trend as mortgage applications face a decline. The primary reasons behind this drop are the soaring home prices and robust interest rates. According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending July 21, 2023, the Market Composite Index, which monitors the volume of U.S. mortgage loan applications, witnessed a decrease of 1.8% compared to the previous week. Concurrently, mortgage refinancing activity also took a hit due to the exorbitant lending rates. Refinancing loans for homes decreased by 0.4% in just one week and experienced a staggering 30% plunge over the past year. The unadjusted housing purchases have also fallen, declining by 2% in comparison to the previous week and a staggering 23% when compared to the same time in 2022. Marty Green, principal at the mortgage law firm Polunsky Beitel Green in Dallas, explains that the decline in loan applications can be attributed to the combination of high interest rates and a decrease in housing inventory. Higher interest rates make sellers less inclined to sell since the rate on their next purchase would be significantly higher than the rate most homeowners currently have on their mortgage. Buyers are also hesitating due to concerns about high rates and limited inventory. Green suggests that the oppressive heat and the summer lull might also contribute to this trend, but inventory and rate concerns play a more substantial role. The recent quarter-point interest rate hike by the U.S. Federal Reserve on July 26, increasing from 5.25% to 5.50%, may potentially be the last rate boost for some time. If this prediction holds true, it could have a significant impact on the housing market. Mark Buskuhl, founder and CEO at Ninebird Properties in Plano, Texas, believes that if the Fed refrains from further rate increases, it could result in reduced borrowing costs and more favorable conditions for prospective homebuyers to qualify for financing. Consequently, this could lead to an increase in mortgage applications as borrowers take advantage of lower interest rates. Green adds that mortgage bonds are currently trading at a premium compared to treasury rates, and this premium is likely to decrease once the Fed’s terminal rate becomes clearer.
Decline in Mortgage Applications Found in Latest MBA Weekly Survey
