The onerous combination of high mortgage rates and few homes for sale is keeping homebuyers out of the market.
As the fall housing market kicks off, the number of mortgage applications dropped to their lowest level since 1996 in the week ending Sept. 8, according to the Mortgage Bankers Association. The data was adjusted to account for the Labor Day holiday.
The decline was due to mortgage rates that blew past 7% in recent weeks, reaching their highest level in more than two decades. Many buyers can’t afford to purchase homes with these rates, and those who still can are struggling to find something available to purchase. Rates averaged 7.12% for 30-year fixed-rate loans, according to Freddie Mac data.
“Mortgage applications decreased for the seventh time in eight weeks,” MBA Deputy Chief Economist Joel Kan says in a statement. “Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate.”
Applications to purchase a home fell 20.9% from four weeks ago and were down 27.2% from a year earlier. There was an even steeper drop in homeowners seeking to refinance their mortgages at today’s higher rates, dropping 31.1% from last year.
“I’ve never seen it this bad,” says mortgage broker Richard Bettencourt who has been in the business for more than 20 years. He’s the president of Veteran Mortgage Brokers based in the Boston suburb of Danvers, MA.
But he was quick to point out that “you’re coming off two-and-a-half years of the lowest rates we’ve ever seen.”
During the COVID-19 pandemic, mortgage rates fell to record lows below 3%. Scores of folks bought homes or refinanced their loans locking in low monthly housing payments. These folks are understandably reluctant to refinance their loans at a much higher rate unless they don’t have another option.
First-time and repeat buyers might no longer be able to afford the monthly mortgage payments with rates stretching so high. And homeowners are staying put as they don’t want to put their homes on the market if they have to buy new ones with a much higher rate.
“Most mortgage professionals would tell you that they have a drawer full of pre-approvals even at these higher mortgage rates,” says Bettencourt. “But there’s nothing on the market.”