Mortgage Demand Falls to 25-Year Low as Interest Rates Top 7 Percent: Mortgage Bankers Association

A home is offered for sale in Chicago on April 26, 2022. Scott Olson/Getty Images

Mortgage applications have fallen to their lowest level in 25 years as interest rates hit record highs, according to the Mortgage Bankers Association (MBA).

The MBA’s Market Composite Index, which measures mortgage application loan volume, fell 1.7 percent on a seasonally adjusted basis for the week ending Oct. 21 compared to a week earlier, according to an Oct. 26 news release.

The Refinance Index declined 0.1 percent on a weekly basis and was down 86 percent compared to a year prior. The Purchase Index fell 2 percent from the previous week on a seasonally adjusted basis to its slowest pace since 2015 and was over 40 percent lower than the previous year.

Mortgage rates have increased for the 10th consecutive week, with the 30-year fixed rate reaching 7.16 percent, Joel Kan, MBA’s vice president and deputy chief economist, said in the news release.

“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” Kan said.

MBA is expecting purchase originations to decline by 3 percent in 2023 due to “economic and housing market weakness,” he said. Refinance volume is projected to fall by 24 percent.

While the share of refinance in mortgage activity rose to 28.8 percent of total applications, the share of adjustable-rate mortgages fell to 12.7 percent.

The Housing Market

According to Chen Zhao, a Redfin economics research lead, the U.S. housing market has come to a standstill, but he said the driving forces behind this slowdown are different than those that caused the slowdown at the beginning of the pandemic.

A recent Redfin report showed that the number of homes sold in September fell by 25 percent. Other than the market dip in 2020 during the height of the pandemic, the September decline is greatest on record, the report stated.

“The housing market is going to get worse before it gets better,” Zhao stated in the Redfin report. “With inflation still rampant, the Federal Reserve will likely continue hiking interest rates. That means we may not see high mortgage rates—the primary killer of housing demand—decline until early to mid-2023.”

The minutes from the September meeting of the Federal Open Market Committee showed that the central bank intends to maintain a restrictive policy of high interest rates for a longer time, and analysts at Goldman Sachs believe the housing market will fall further in the coming months due to the fact that existing sales data for September failed to fully account for the recent increases in mortgage rates.