Mortgage Applications Rise, But Purchase Activity Declines
Housing demand came to a standstill last week as mortgage rates inched closer to 7%, making it increasingly difficult for potential buyers to enter the market ahead of the crucial spring season. According to new data published on Wednesday, the Mortgage Bankers Association’s (MBA) index of mortgage applications rose 3.7% last week compared to the previous week. However, this increase was solely driven by current homeowners refinancing their mortgages. On the other hand, applications for mortgages to purchase homes fell 1% compared to the previous week, indicating that the high mortgage rates continue to constrain housing supply. In fact, application volume remains down 19% compared to the same period last year. Joel Kan, an MBA economist, stated, “Purchase activity has been strong to start 2024 compared to the final quarter of 2023. However, activity is still weaker than a year ago because of low housing supply.”
Credit Card Debt on the Rise Poses Dual Challenge for the Economy
The data also revealed that the average rate on the popular 30-year loan increased from 6.78% to 6.8% in the previous week. However, this data does not account for the significant surge in mortgage rates following the release of a robust January jobs report. On Friday, rates on the 30-year loan jumped 29 basis points, marking the largest one-day increase in over a year. The upward trend continued on Monday, with rates crossing the 7% threshold for the first time since December, as reported by Mortgage News Daily. Despite the higher rates, demand for refinancing saw a 12% increase from the previous week, according to the survey. Compared to the same period last year, refinance applications have risen by 1%.
Interest Rate Impact: Cooling Housing Market and Limited Inventory
The housing market, sensitive to interest rate fluctuations, has swiftly cooled down due to the Federal Reserve’s aggressive tightening campaign. In an attempt to curb persistent inflation and slow down the economy, policymakers raised the benchmark federal funds rate 11 times across 16 meetings. During their recent policy-setting meeting, officials indicated that they have concluded raising interest rates but are not yet ready to consider reducing them. Although investors had previously anticipated a series of rate cuts starting as early as March, most economists now expect these cuts to commence in May or June. The higher mortgage rates are not only curbing consumer demand but also limiting inventory. Sellers who secured low mortgage rates prior to the pandemic have been hesitant to sell as rates continue to hover near a two-decade high. Consequently, this leaves few options for eager prospective buyers.
Low Inventory Persists as Home Supply Remains Down 34.3%
A separate report published by Realtor.com indicates that available home supply remains significantly low, down 34.3% from pre-pandemic levels in early 2020. The combination of limited inventory and high mortgage rates is adding to the challenges faced by those in search of a new home.