Housing Market Correction: Rates Up, Lack Of Buyers, Cracks Forming In Home Improvement

The housing market, still in its relentless rough patch as mortgage rates continue to climb higher, is deterring buyers from making a move.

What Happened: Mortgage applications for purchasing a home plummeted by 6% last week compared to the previous week, falling for the third straight week, according to the Mortgage Bankers Association.

The volume of mortgage applications was 44% lower than the same week one year ago, marking a 28-year low.

Adding to the woes, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.71% from 6.62%, with points rising to 0.77 from 0.75 for loans with a 20% down payment.

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The high rate environment has already forced some firms to lay off employees. Online loan marketplace LendingTree Inc TREE laid off roughly 200 employees, while JPMorgan Chase & Co JPM and Wells Fargo & Co WFC have also let go of employees. Wells Fargo cut 500 mortgage bankers last week, and Rocket Companies Inc RKT has also implemented layoffs.

The impact of the housing market slowdown is also evident in the earnings of companies such as Lowe's Companies Inc LOW.

Last year, Lowe's enjoyed strong sales growth as the housing market remained robust. However, as the market cooled towards the second half of 2022, the Street's expectations for Lowe's also fell.

Lowe's reported fiscal fourth-quarter sales on Wednesday that fell short of consensus estimates and issued a conservative outlook for 2023, indicating that homeowners are not renovating and new buyers are not entering the market.

Federal Reserve chairman Jerome Powell warned late last year that the housing market — by way of spiking interest rates — would likely go through a “difficult correction” before achieving “better balance.”

Those would-be home buyers need to see a correction in mortgage rates, an increase in supply, and an overall decrease in home prices for a better balance.

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Photo: Andrey_Popov via Shutterstock