23-Year-High Mortgage Rates Further Suppress App Volume

Mortgage applications fell 1% week-over-week, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 20, 2023.

The MBA’s Refinance Index rose 2% from the previous week, and was 8% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2% from one week earlier, while the unadjusted Purchase Index decreased 2% compared to the previous week, and was 22% lower than the same week one year ago.

“Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits. Mortgage rates followed Treasuries higher, with the 30-year fixed mortgage rate jumping 20 basis points to 7.9%–the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of 69 basis points,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Mortgage activity continued to stall, with applications dipping to the slowest weekly pace since 1995. These higher mortgage rates are keeping prospective homebuyers out of the market, and continue to suppress refinance activity. The ARM share of applications inched up to 9.5%, its highest since November 2022.”

The MBA also reported that the overall refinance share of mortgage activity increased to 31.4% of total applications, up from 30.5% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.5% of total applications.

By loan type, the FHA share of total applications rose to 15.2%, up from 14.8% the week prior. The VA share of total applications fell to 10.5%, down slightly from 10.7% the week prior. The USDA share of total applications decreased to 0.4% from 0.5% the week prior.

As affordability issues continue to cloud the plans of many prospective buyers, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reports the median sales price of new houses sold in September 2023 was $418,800, with the average sales price at $503,900.

“Of note is that the year-over-year change in the median sales price of negative 12.3% was the largest decline since February 2009,” said Doug Duncan, Chief Economist at Fannie Mae of the new HUD/Census Bureau data. “Though this measure does not consider changes in the geographic mix of sales, it is consistent with homebuilders offering larger concessions to drive sales and further changing the mix of homes being offered to more modest products. However, with mortgage rates continuing to rise and homebuilder optimism surveys softening, we expect new sales to soften over the remainder of the year.”

Redfin recently reported that the year 2023 is likely to end with roughly 4.1 million existing home sales nationwide, the fewest since the housing bubble burst in 2008 after the subprime mortgage crisis, as rising rates continue to force prospective buyers to the sidelines. Redfin’s Homebuyer Demand Index–a measure of tours and other early-stage demand indicators–also hit its lowest level in a year.

Struggles with maintaining the nation’s housing supply is yet another factor dampening sales, as Redfin reports there are 14% fewer homes for sale than a year ago, as homeowners continue to stay put in their current residence and stick with their relatively low rates.

The National Association of Home Builders (NAHB) reports that continued high mortgage rates are taking toll on builder confidence, as sentiment levels have dropped to the lowest point since January 2023. Builder confidence in the market for newly built single-family homes in October 2023 fell four points to 40 from a downwardly revised September reading, according the NAHB/Wells Fargo Housing Market Index (HMI), marking the third consecutive monthly drop in builder confidence.

And as First American Deputy Chief Economist Odeta Kushi notes, “Lower builder sentiment is concerning because the U.S. housing market faces a structural housing shortage. Demographic tailwinds from millennials continuing to age into their prime home-buying years and a lack of existing-home inventory mean that new home construction is essential in meeting shelter demand.”