Mortgage demand falls to lowest level since 1995 as rates surge
Mortgage rates hit highest level since 2000, cooling housing demand
High mortgage rates, home prices forces millions of Americans to the sidelines
FOX Business correspondent Madison Alworth shares why for many first-time homebuyers, the American dream is delayed as a result of high mortgage rates and home prices on 'Varney and Co.'
A key measure of home-purchase applications tumbled last week to a nearly three-decade low as consumer demand cooled sharply amid a recent surge in mortgage rates.
The Mortgage Bankers Association's index of mortgage applications fell 4.2% last week to the lowest level since 1995, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan climbed to 7.31% from 7.16% the previous week, the highest level since December 2000. By comparison, just one year ago, rates hovered around 5.65%.
"Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high," said Joel Kan, MBA's deputy chief economist.
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Homes in Hercules, California, on Aug. 16, 2023. (David Paul Morris/Bloomberg via / Getty Images)
The steeper rates weighed heavily on housing demand, with applications for a mortgage to purchase a home tumbling 5% for the week. Application volume is down 30% compared with the same time last year.
Demand for refinancing also continued to fall last week, sliding another 3%, according to the survey. Compared with the same time last year, refinance applications are down 35%.
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"Applications for home purchase mortgages dropped to their lowest level since April 1995, as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power," Kan said. "Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing."
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. (David Paul Morris/Bloomberg via / Getty Images)
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign. Policymakers already lifted the benchmark federal funds rate 11 consecutive times as they try to crush stubborn inflation and slow the economy.
Not only are higher mortgage rates dampening consumer demand, but they are also 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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The number of available homes on the market at the end of July was down by more than 9% from the same time last year and down 46% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com.