Housing demand ground to a halt last week as mortgage rates inched closer to 7%, squeezing many would-be buyers out of the market ahead of the pivotal spring season.
The Mortgage Bankers Association's (MBA) index of mortgage applications rose 3.7% last week, compared with the previous week, according to new data published Wednesday. But the increase was entirely due to current homebuyers who refinanced their mortgages.
Applications for a mortgage to purchase a home fell 1% compared with the previous week as high mortgage rates continued to limit housing supply; application volume remains down 19% compared with the same time last year.
"Purchase activity has been strong to start 2024 compared to the final quarter of 2023," said Joel Kan, an MBA economist. "However, activity is still weaker than a year ago because of low housing supply."
CREDIT CARD DEBT RISING IN DOUBLE-EDGED SWORD FOR THE ECONOMY
The data also showed that the average rate on the popular 30-year loan rose to 6.8% from 6.78% the previous week. However, that does not take into consideration the sharp jump in mortgage rates that took place after the January jobs report came in much stronger than expected.
Rates on the 30-year loan surged 29 basis points on Friday – the largest one-day jump in more than a year – and continued to trend higher on Monday, crossing 7% for the first time since December, according to Mortgage News Daily.
Despite higher rates, demand for refinancing moved higher last week, rising 12% from the previous week, according to the survey. Compared with the same time last year, refinance applications are up 1%.
MORTGAGE RATES CONTINUE TO HOVER NEAR HIGHEST LEVEL SINCE 2000
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their most recent policy-setting meeting last week that they are done raising interest rates – but aren't quite ready to pivot to cutting them yet. Investors had previously penciled in a series of aggressive rate reductions beginning as early as March. Now most economists expect the cuts to begin in May or June.
Higher mortgage rates are not only dampening consumer demand, but they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
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Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
