Home loan applications have reached their lowest point since the mid-1990s, according to data from the Mortgage Bankers Association. This drop comes as mortgage rates soar above 7.5%. In fact, the average interest rate on a 30-year fixed rate loan with a conforming balance climbed to 7.53%, marking the highest rate recorded since 2000. This increase in rates has led to a four-week streak of declines in home loan applications.
Joel Kan, the association’s deputy chief economist, acknowledges that the rise in rates has had a significant impact on the housing market. He states, “As a result, mortgage applications ground to a halt.” The trade group’s index measuring mortgage application volume fell to its lowest point since 1996, and its measure of purchase applications dropped even further to the lowest level seen since 1995. Many potential homebuyers have been pushed out of the market due to these rapid rate increases.
One notable effect of rising rates is the increased popularity of adjustable-rate mortgages (ARMs). Last week, the share of applications for adjustable loans rose from 7.5% to 8%.
Looking ahead, it seems that home loan interest rates will continue to climb. Treasury yields and daily measures of mortgage rates suggest that this upward trend has persisted beyond the period covered in the recent Mortgage Bankers data. For instance, on Tuesday, the 10-year Treasury was yielding 4.801%, its highest level since August 2007. Moreover, Mortgage News Daily reported a 30-year fixed-rate mortgage of 7.72% on the same day.
The impact of these rising mortgage rates is already apparent in the housing market. August data from the census and National Association of Realtors reveals that home sales have taken a hit. Lawrence Yun, chief economist at the National Association of Realtors, warns that higher rates could cause existing-home sales to decline even further, potentially reaching new lows. In fact, Yun suggests that mortgage rates could rise as high as 8% in the near future.
While these statistics paint a concerning picture for the housing market, only time will tell if this upward trend in rates will continue. One thing is clear, though – potential homebuyers are facing increasing obstacles as they try to navigate the current market conditions.