It’s a perfect negative storm of events for homebuyers right now that are keeping many on the sidelines, unable to find a home that they both want and can afford.
Thanks to interest rates that are significantly higher than they were at this point last year, the housing market in many major areas throughout the country.
The Mortgage Banker’s Association reported results from its weekly survey this week, which shows that demand for applications for mortgages dropped 4.6% this week compared to the week before.
As Joel Kan, the association’s vice president and deputy chief economist, said:
“Mortgage applications declined almost 5% last week as borrowers remained sensitive to higher rates. The 30-year fixed rate increased to 6.69%, the highest level since March.”
The MBA also reported that its refinance index dropped 5% from the week before, while its purchase index dropped 4% in that timeframe as well.
“Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months.”
One positive in the housing market is that new home construction in the U.S. rebounded during the month of April. That was due in large part to the limited inventory that helped to jolt demand among homebuyers.
In April, housing starts increased by 2.2%, reaching an annual rate of 1.4 million units. That’s according to the most recent data set released by the Department of Commerce.
As Kan said:
“Economic data released over the past week have also pointed to a still-resilient economy. The housing market received positive data on new residential construction, which is seen as a key solution to the lack of housing inventory.”
That being said, the overall housing market is still experiencing a significant slump.
Mortgage interest rates have been on a considerable and steady climb up over the past year or so. The Federal Reserve Bank has been bumping its benchmark interest rate to combat inflation, and while mortgage rates are more closely tied to the 10-year Treasury note, that has been going up a lot, too.
As the COVID-19 pandemic raged, mortgage rates hit all-time lows. Interest rates were below 3% for much of those two years, and they remained there for a while.
That all changed come 2022. In January of 2022, the average 30-year fixed-rate mortgage interest rate was 3.22%, according to Freddie Mac. That jumped all the way to 7.08% by October of that year.
In late May, that number had dropped to 6.39%, but that’s still more than double what it was only a few years ago.
The high mortgage interest rate alone would sideline a lot of potential homebuyers, but the double whammy is that housing inventory is low, too, which pushes up housing prices.
Overall, this makes for a very difficult situation for homebuyers, which is keeping them on the sidelines of the market for now.