According to new data published by the Mortgage Bankers Association, a key measure of home-purchase applications in the US has fallen to its lowest level since 1996. The MBA's index of mortgage applications dropped 2.9% last week, with both purchase and refinance applications declining. Joel Kan, the MBA's deputy chief economist, cited low housing inventory and elevated mortgage rates as reasons for the decrease in demand. Despite a slight improvement in the average rate on a 30-year loan, mortgage rates are still about 1% higher than they were a year ago.
The decline in mortgage applications reflects the cooling of the interest rate-sensitive housing market. The Federal Reserve's aggressive tightening campaign, which has seen the benchmark federal funds rate increase 11 consecutive times, has contributed to the slowdown. Higher mortgage rates are not only dampening consumer demand but also limiting inventory. Sellers who locked in low mortgage rates before the pandemic are hesitant to sell their homes with rates near a two-decade high, resulting in a shortage of options for potential buyers.
A recent report from Realtor.com shows that the total number of homes for sale, including those under contract but not sold, dropped by 9.2% in August compared to the previous year. The supply of available homes remains down 45% from pre-pandemic levels. Danielle Hale, chief economist at Realtor.com, expressed concern over the persistently low inventory, which is putting upward pressure on home prices and making it harder for some buyers to enter the market.
Overall, the decline in mortgage applications and the shortage of housing inventory can be attributed to both elevated mortgage rates and low supply. The housing market has cooled significantly due to the Federal Reserve's efforts to combat inflation and slow down the economy. These factors have affected both potential homebuyers and sellers, leading to decreased demand and limited options for those looking to purchase a home. The affordability concerns resulting from the inventory crunch and rising home prices have further exacerbated the challenges faced by prospective buyers.