Mortgage demand plunges to 22-year low as affordability ‘deteriorates’ deters buyers, but here’s why prices will keep rising

Topline

Mortgage rates fell last week in the latest sign that rising interest rates have started to temper demand in the booming housing market, but experts note that falling demand will not bring prices down quickly. prices due to historically low inventory levels, some price forecasts are expected to continue to rise throughout the year.

Highlights

Mortgage applications fell 6.5% from the previous week in the week ending June 3, according to the Mortgage Bankers Association’s weekly mortgage applications survey.

In a statement, Joel Kan of the MBA noted that rising interest rates, spurred by the Federal Reserve’s efforts to fight inflation, have made buying a home more expensive and, therefore, drove down purchase and refinance requests to the lowest level in 22 years.

Although they plunged at the start of the pandemic, mortgage rates have soared since the Fed began raising rates in April, with the latest 30-year fixed-rate mortgages averaging around $5. .1%, against less than 3% a year earlier.

A “persistent” housing stock has also fueled prices and dampened demand, Kan said, adding that “worsening affordability issues have been particularly difficult for potential first-time buyers.”

In a note last week, Bank of America economists told clients affordability had fallen to levels not seen during the housing crisis that triggered the Great Recession, and warned that weak supply would likely drive prices up another 15% this year.

The latest data comes after S&P CoreLogic reported last week that home prices soared at the fastest pace in 35 years in March, with S&P DJI chief executive Craig Lazzara adding that it is not still unclear how long it will take for price gains to begin to decelerate.

Surprising fact

The median price of new homes hit a record high of $450,600 in April, climbing nearly 20% year over year, according to the Census Bureau.

Key Context

Historically high savings rates, government stimulus, low supply and interest rates helped spark a home-buying frenzy during the pandemic, but signs of a slowdown have emerged as the Fed begins its most aggressive cycle of interest rate hikes in two decades. According to data released last month, pending home sales fell for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales fell nearly 17% from compared to March.

crucial quote

“While it can be safely predicted that price gains will begin to slow, the timing of the deceleration is a tougher choice,” Lazzara said.

Further reading

Home prices rise 20.6% in biggest spike this century (Forbes)

Pending home sales plunge to lowest level in nearly a decade – the worst could be yet to come (Forbes)

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