Home Buying Applications Decrease To Close To Three-Decade Lows

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Home Buying Applications Decrease To Close To Three-Decade Lows

Sep 1, 2023 | News | 0 comments

With mortgage rates crossing 7% last week, the Mortgage Bankers Association (MBA) noted a 4.2% weekly dip in home loan applications, as more people were deterred from pursuing homeownership, according to the MBA’s Weekly Mortgage Applications Survey.

Last week, surging Treasury yields raised worries about persistent inflation and economic strength. Mortgage rates jumped, hitting a 30-year high at 7.31%. Consequently, home purchase mortgage applications plummeted to their lowest since April 1995. This was driven by both the high rate environment and reduced purchasing power. Additionally, limited housing supply further contributed to elevated home prices in various markets.

Purchase applications declined, mirroring the Refinance Index which dropped 3% from the prior week and 35% from a year ago. The seasonally adjusted Purchase Index fell 5% from the previous week, while the unadjusted index decreased 7% from the prior week and 30% from a year ago.

Mortgage activity showed a rise in the refinance share, climbing to 29.5% from the previous week’s 28.6%. Amidst volatile rates, the adjustable-rate mortgage (ARM) also gained momentum, accounting for 7.6% of total applications.

With the ARM portion of applications rising to 7.6%, the highest in five months, and a 4% increase in ARM applications last week, Kan noted that certain buyers aim to reduce monthly payments by assuming interest rate uncertainty after the initial fixed term.

Regarding loan types, the MBA indicated a minor uptick in the FHA share of total applications, rising to 14.3% from the previous week’s 13.8%. Meanwhile, the VA share declined to 11.6% from 11.8% the previous week, and the USDA share increased to 0.5% from the prior week’s 0.4%.

The dwindling housing inventory situation could worsen due to a slowdown in new home construction. In August 2023, the NAHB found that builder confidence in new single-family homes dropped by six points to 50, interrupting seven months of growth. Rising mortgage rates above 7% and high shelter inflation further hindered housing affordability and consumer demand.

In August, builder sentiment cooled due to elevated mortgage rates and costly construction. Alicia Huey, NAHB Chairman, noted that construction worker scarcity, limited building lots, and transformer shortages contributed. While housing affordability remains an issue, demand for new construction endures due to low resale inventory, as homeowners with low mortgage rates choose not to sell.