Mortgage applications have fallen to the lowest level in some 27 years as homebuyers shy away from rising mortgage rates that have hit highs not seen since the turn of the century.
Mortgage loan application volume decreased by 6% last week on a seasonally adjusted basis, according to a Wednesday report from the Mortgage Bankers Association.
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"[M]ortgage applications grounded to a halt, dropping to the lowest level since 1996,” said Joel Kan, MBA’s vice president and deputy chief economist. “The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market.”
The volume of refinances dropped by 7% during that same time and is 22% lower than this time last year, according to the group’s weekly survey.
Mortgage rates have lurched upward in recent weeks as investors weighed the possibility that the Federal Reserve will keep its target interest rate high for longer or perhaps even conduct more rate hikes.
As of Wednesday, the average rate on a 30-year fixed-rate mortgage has soared to 7.74%, according to Mortgage News Daily. That is more than a half percentage point increase in just the past two months alone. The last time rates were this high was in 2000.
Mortgage rates had soared from where they were during the height of the pandemic when the Fed’s interest rate target was cut to near zero. Homebuyers were able to lock in sub-3% mortgages, fueling a massive housing boom that saw home prices spiral quickly.
New home sales fell 8.7% from July to August to a seasonally adjusted annual rate of 675,000, according to a recent report from the Census Bureau. Meanwhile, existing home sales fell by 0.7% from July to August to a seasonally adjusted rate of 4.04 million.
Housing starts, the change in the number of new residential buildings that began construction, fell 11.3% from July to August, according to a report from the Census Bureau. They are now at a seasonally adjusted annual rate of 1.283 million. From August 2022, they fell 14.8%. That marks the lowest level since June 2020.
Investors are divided on whether they think rates will move higher before the end of the year.
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Investors see about a 64% probability that the Fed will not hike rates again before the end of the year, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
They place a 32% chance on the possibility that the Fed’s target rate will go a quarter of a percentage point higher and nearly 4% on the Fed conducting two more interest rate hikes before the start of 2024.