Home Purchase Apps Drop to Near 30-Year-Low

With mortgage rates exceeding the 7% mark last week, the Mortgage Bankers Association (MBA) reported that overall application volume followed the unwritten script, as more were driven away from locking in the American Dream, as apps dipped 4.2% week-over-week, according the MBA’s Weekly Mortgage Applications Survey.

“Treasury yields continued to spike last week, as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high. This spike pushed mortgage rates higher last week, with the 30-year fixed rate increasing to 7.31%–the highest level since December 2000,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Applications for home purchase mortgages dropped to their lowest level since April 1995, as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power. Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing.”

As purchase apps slipped, the MBA’s Refinance Index followed the same trajectory, falling 3% from the previous week, and was 35% lower than the same week just one year ago. The seasonally adjusted Purchase Index decreased 5% from one week earlier, while the unadjusted Purchase Index decreased 7% compared to the previous week, and was 30% lower than the same week one year ago.

The refinance share of mortgage activity rose to 29.5% of total applications, up over a full percentage point from 28.6% reported the previous week. Meanwhile, in an erratic rate environment, the adjustable-rate mortgage (ARM) saw an uptick in activity, as the share of ARM activity increased to 7.6% of total applications.

“The ARM share of applications increased to 7.6%, the highest level in five months, and the number of ARM applications picked up by 4% last week,” added Kan. “Some homebuyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period.”

By loan type, the MBA reported that the FHA share of total applications increased slightly to 14.3% from 13.8% the week prior. The VA share of total applications fell to 11.6% from 11.8% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

The lack of inventory may be further impeded by a slowdown in new home construction, as in August, the National Association of Home Builders (NAHB) found that builder confidence in the market for newly built single-family homes fell by six points to 50 (according to the latest NAHB/ Wells Fargo Housing Market Index). After steadily rising for seven consecutive months, builder confidence retreated in August 2023 as rising mortgage rates accelerated past the 7% mark, and high shelter inflation have further eroded housing affordability, and put a damper on consumer demand.

“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many home owners elect to stay put because they are locked in at a low mortgage rate.”