Mortgage demand plummets again despite drop in interest rates
Mortgage demand slumped in final week of 2023, despite lower rates
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 slumped over the holidays despite a sharp drop in mortgage rates over the course of December.
The Mortgage Bankers Association's (MBA) index of mortgage applications fell 9.4% for the week ended Dec. 29, compared with two weeks earlier, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan ended the year at 6.76%. While that is down from a peak of 8% in October, it is slightly higher than it was the previous week.
"Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023," said Joel Kan, MBA's deputy chief economist. "The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response."
CREDIT CARD DEBT RISING IN DOUBLE-EDGED SWORD FOR THE ECONOMY
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com. (David Paul Morris/Bloomberg via / Getty Images)
Housing demand remained muted even with the recent drop in rates. Applications for a mortgage to purchase a home dropped 5% from two weeks earlier. Application volume is down 12% compared with the same time last year.
Demand for refinancing also fell last week, declining 18% from the previous two weeks, according to the survey. Compared with the same time last year, refinance applications are up about 15%.
"The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response," Kan said. "Refinance applications were still at very low levels, but were 15% higher than a year ago."
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 consecutive times over the past two years in an attempt to crush stubborn inflation and slow the economy.
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)
However, many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.
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Higher rates have not only dampened consumer demand over the past year, but also severely limited 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.
"The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months in come," Kan said.