As interest rates continue to rise, mortgage applications drop 14% from one week earlier

High mortgage rates, natural disasters, and economic uncertainty push Americans to reconsider their decision to enter the sales market. A growing number of would-be-buyers return to the rental market, and the demand for home loans and refinancing continues to drop.

In the week ending September 30, mortgage applications fell 14.2 percent from a week prior, according to the survey from Mortgage Bankers Association. The overall application activity sank to the lowest level since 1997. 

This steep drop in mortgage demand comes from a significant increase in interest rates, which jumped from 3 percent to over 6.5 percent since the start of this year. However, the Federal Reserve’s rate hikes are not the only factor contributing to the decrease in the application volume.  

“There was also an impact from Hurricane Ian’s arrival in Florida last week, which prompted widespread closings and evacuations,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Applications in Florida fell 31 percent, compared to 14 percent overall, on a non-seasonally adjusted basis.”   

High interest rates also had an impact on refinance volume, which dropped 18 percent from last week and 86 percent year-over-year. The MBA’s survey found that the refinance share of mortgage activity now makes up only 29 percent of total applications, down from 30.2 percent the week before. Most people who took out a home loan in the past have already locked in lower interest rates, which means there is no point for them to refinance their mortgage right now. 

On the bright side, this drop in buyers’ demand caused a slight decrease in home prices. The median sales price of a Manhattan home fell 7.6 percent in the third quarter of this year, according to a recent report from Miller Samuel. In an interview with Brick Underground, real estate experts suggested that moderate price declines might continue throughout the fall. 

Resources: 

“Mortgage Applications Decrease in Latest MBA Weekly Survey,” by Falen Taylor (Mortgage Bankers Association, 2022)

“Mortgage applications plunge 14% in a single week,” by Harrison Connery (The Real Deal, 2022)

“Mortgage applications plummet 14% as higher interest rates and Hurricane Ian crush demand,” by Diana Olick (CNBC, 2022)

“'Sellers just as uncertain as buyers' as the Manhattan sales market pivots to a slower pace,” by Emily Myers (Brick Underground, 2022)