Mortgage applications are continuing to decline as high mortgage rates—and therefore higher monthly payments—drive buyers away.
Key Details
- New data from the Mortgage Bankers Association revealed that mortgage applications decreased 14.2% from the previous week at the end of September.
- High mortgage rates—near 7%—have caused a drop in applications, bringing applications to the lowest rates since 1997.
- Hurricane Ian played a role in the decline as the housing market in Florida has stalled in the aftermath of the storm.
Why it’s news
As mortgage rates creep closer to 7%, fewer buyers are willing to pay the high monthly payments, resulting in a decline of mortgage applications.
The dramatic drop in applications may recover in the coming weeks as the hurricane had a significant effect. Applications in Florida alone fell 31%.
Though Florida will recover from hurricane damage, buyers may not recover from high mortgage rates.
The refinance index fell 18% from the previous week. It remains 86% lower than last year. The purchase index also fell, reaching numbers 13% lower than the week before and 37% lower than last year.
Backing up a bit
As if mortgage rates weren’t driving enough buyers away, buyers now have to contend with the fact that income levels have not risen at the same rate as home prices.
The average income needed to buy a house in some cities has nearly doubled, but the actual income has stayed about the same.
According to the Census Bureau, median household income was $70,784 in 2021, a slight drop from 2020 when it was $71,186.
For the seventh month, pending home sales dropped, reaching the lowest levels since 2011, as fewer potential home buyers are able to make a purchase.
Home prices are starting to decline after a 1.6% slide in year-over-year home price growth from July to August.
The drop is the largest one-month decline in the 27-year history of the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.
But prices are still 15.8% higher than July last year, meaning that even with the price drop potential home buyers are struggling to find something in their budget. With skyrocketing interest rates, finding a home that buyers can afford is even more difficult.
