With Interest Rates Soaring, Weekly Mortgage Demand Nosedives 11% – A Warning Sign For The Real Estate Market?

According to the Mortgage Bankers Association (MBA), mortgage demand took a sharp dive, with applications plummeting 11% as interest rates hovered above 7%. The MBA's Chief Economist, Mike Fratantoni, remarked that affordability is being squeezed tightly and first-time buyers, particularly, are feeling the heat. 

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"Homebuyers, particularly first-time buyers who do not have the ability to make larger down payments, have been more willing to accept a higher payment burden," Fratantoni commented. The average 30-year fixed-rate mortgage peaked in May at 7.2%, keeping some potential buyers on the sidelines and leaving those dependent on financing in a pinch.

The squeeze on buyers reflects the sixth week of declining mortgage applications, showing just how much the current rate environment has cooled off what was previously a red-hot market. Joel Kan, an economist with the MBA, noted, "Purchase activity has fallen to its lowest level since mid-August and refinance activity has hit its lowest since May." 

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He explained that refinancing is particularly rate-sensitive; as a result, refinance applications dropped 19% in just one week, though they remain 48% higher than the same week last year.

"Most people refinancing are looking for immediate relief, but even those with larger loans are opting out now," Kan noted.

"They're susceptible to even slight changes in rates." He pointed out that the average refinance loan size has dropped below $300,000, signaling that borrowers with larger debts may hesitate to lock in rates at this level. 

The impact doesn't stop with refinance applicants. Mortgage applications for home purchases also slid, dipping 5% for the week and barely registering a 2% increase from last year. 

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According to Kan, home-buying activity has seen a boost over recent months as more inventory becomes available and prices ease a bit, but the recent rate hikes seem to be pricing some buyers right back out. "People are simply less willing to leap into a new mortgage with such high rates. The higher costs are turning what would have been a manageable purchase into a hard sell," he observed.

Experts are mixed on where rates might head in the near term, but there's some cautious optimism for 2024. Analysts at S&P Global Ratings expect mortgage rates to gradually ease and if that pans out, the housing market may find some breathing room. 

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