July 12, 2024

Homebuying Halt: Mortgage Applications Plummet to 30-Year Low Amid Soaring Housing Prices

Image Credits: John Fredricks/The Epoch Times

In a financial twist reminiscent of a rollercoaster, the mortgage market is experiencing a ride that hasn’t been seen in nearly three decades. As the monthly mortgage payments soar to unprecedented heights, the demand for housing has taken a nosedive. Let’s dive into the numbers and explore the factors at play.

Mortgage Rates Skyrocket

Over the past few weeks, mortgage rates have skyrocketed, with 30-year mortgage rates hovering above 7 percent. This surge has led to a near-record high in mortgage payments, putting the squeeze on homeowners across the nation.

Additionally, housing prices have been on a relentless upward climb. The scarcity of available existing homes has pushed prices to levels unseen since October 2022. For potential buyers, this trend has turned the dream of homeownership into an elusive fantasy.

With the cost of homeownership hitting historic highs, many potential buyers are opting to rent instead. The market is becoming increasingly unfriendly to home seekers, thanks to a shortage of sellers and an influx of eager buyers.

The typical monthly mortgage payment rose to $2,612 with a 7.18 percent mortgage rate during the four weeks ending Sept. 3, just $18 below the record high set in May, according to Redfin.

Mortgage purchase applications plunged 28 percent year-over-year, marking a 28-year low. And pending home sales? They’re down 12 percent year over year. Buyers are stepping back from the real estate battlefield.

“Last week’s decline [was] driven by a 5 percent drop in refinance applications to the weakest reading since January 2023,” according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“Purchase applications increased over the week despite the increase in rates, pushed higher by a 2 percent gain in conventional loans. 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,” Mr. Kan added.

Rising home prices are partly due to homeowners reluctant to sell their homes, which they bought at record-low mortgage rates. When more buyers than sellers are in the game, the balance tilts and prices skyrocket.

While homeowners struggle with soaring mortgage costs, they must also deal with mounting mortgage debt. Mortgage balances surged by $627 billion annually in the second quarter of 2023, according to the Federal Reserve Bank of New York. The total mortgage balances held by American homeowners now stand at a staggering $12.01 trillion.

Household Debt and Credit Card Concerns on the Rise

Total household debt reached $17.06 trillion in the second quarter, with household credit card debt seeing a worrisome increase. The average interest rate for credit cards, at 20.68 percent, adds to many financial burdens.

The Federal Reserve, grappling with the challenge of curbing inflation, has raised interest rates 11 times since March 2022. These rate hikes have directly impacted mortgage rates, contributing to the current mortgage market turmoil.

What Lies Ahead

As the Federal Open Market Committee (FOMC) prepares to convene for its next policy meeting, the housing market’s instability, ongoing job growth, and persistent inflation will all weigh heavily on their decision-making. 

With the housing market taking hits and inflation lurking in the shadows, the Fed’s decision on interest rates will carry significant weight. Will they opt for another round of rate hikes? Only time will tell, but the road ahead for homebuyers and debt-burdened Americans looks uncertain.

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