Mortgage demand falls to the lowest point in 22 years

Fewer Americans are applying for a home loan as the inflation climbs to the 40-year high and interest rates stay above 5.5 percent. 

Mortgage applications dropped more than 6 percent between July 8 and July 15, 2022, and 19 percent compared to the last year. The demand for home loans reached the lowest level since 2000, according to the Mortgage Bankers Association’s survey. The economic uncertainty, high home prices, and rising borrowing costs push buyers to wait or go back to renting.

“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand, “ said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.” 

Demand for refinances, which are more sensitive to the weekly increase in mortgage rates, fell 4 percent week-over-week and 80 percent from last year. Refinance applications have also dropped to the lowest point in 22 years. As of Friday, July 22, the average mortgage rate for a 30-year fixed loan is 5.8 percent, up from 5.73 percent the previous week, according to Bankrate. 

At the beginning of this year, interest rates were significantly lower compared to what we are seeing now. The mortgage rate for a 30-year home loan averaged 3.22 percent. Low borrowing costs motivated people to enter the sales market and buy a home. However, as the competition among buyers grew, home prices began to skyrocket, and the number of available listings plumbed. The Federal Reserve has increased interest rates to address the growing inflation and cool off the sales market. 

Resources: 

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

“Broken record: Mortgage demand hits (another) 22-year low,” by Holden Walter-Warner (The Real Deal, 2022)

“Mortgage demand drops to a 22-year low as higher interest rates and inflation crush homebuyers,” by Diana Olick (CNBC, 2022)