Mortgage Demand Drops to Lowest Level in 26 Years as Housing Market Slump Continues

A 'For Sale' sign hangs in front of a home in Miami, Fla., on June 21, 2022. Joe Raedle/Getty Images

Mortgage demand has fallen in the past two weeks to its lowest level since the 1990s as elevated mortgage rates and fears of a recession take a toll on the market, according to latest data from the Mortgage Bankers Association (MBA).

The Market Composite Index, which measures the volume of mortgage loan applications, fell 13.2 percent for the week ended Dec. 30 on a seasonally adjusted basis when compared to two weeks earlier, according to an MBA press release on Jan. 4. On an unadjusted basis, the decline was 39.4 percent.

Joel Kan, MBA’s vice president and deputy chief economist, pointed out that the end of the year tends to be a slower time for the housing market. With mortgage rates above 6 percent and the threat of a recession causing concerns, mortgage applications have fallen to their lowest levels since 1996.

“Purchase applications have been impacted by slowing home sales in both the new and existing segments of the market. Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective homebuyers out of the market,” he said.

The holiday-adjusted Refinance Index fell 16.3 percent from two weeks ago and 87 percent when compared to the year-ago week.

While the seasonally adjusted Purchase Index declined 12.3 percent from two weeks ago, the unadjusted Purchase Index fell by 38.5 percent and was 42 percent lower from a year back.

High Mortgage Rates

The interest rate on a 30-year fixed-rate mortgage averaged 6.42 percent as of Dec. 28, according to data from mortgage lender Freddie Mac. This is down from the peak of 7.08 percent hit in October, but is more than double the 3.11 percent rate a year ago.

In its update, Freddie Mac stated that the housing market remains in doldrums due to falling prices, sales, and inventory.

The decline in sales and the deceleration in home prices had started swiftly at the beginning of 2022, but has moderated of late, it said. The market continues to decline, and housing will remain “weak” throughout winter.

Greg McBride, chief financial analyst for Bankrate, believes the average rate for a 30-year fixed-rate mortgage in January will be between 6.4 percent and 6.6 percent.

“Inflation is still an issue, but so are the concerns about a recession in 2023. Mortgage rates will yo-yo up and down depending on what the latest economic release or Federal Reserve speech says,” he said, according to a Jan. 1st article at Bankrate.

Home Prices

According to property intelligence firm CoreLogic, although home prices in November 2022 were 8.6 percent higher than a year ago, it was the first year-over-year reading in 21 months that price growth was not in double digits. It was also the lowest rate of appreciation since November 2020.

“Although home-price growth has been slowing rapidly, and will continue to do so in 2023, strong gains in the first half of last year suggest that total 2022 appreciation was only slightly lower than that recorded in 2021,” said Selma Hepp, deputy chief economist at CoreLogic, according to CNBC. “However, 2023 will present its own challenges, as consumers remain wary of both the housing market and the overall economic outlook.”

Ian Shepherdson, chief economist at the Pantheon Macroeconomics, wrote in a note in November that he was expecting a 15–20 percent drop in home prices over the next year.

Fannie Mae’s Economic and Strategic Research (ESR) Group is expecting home prices to hit a low point during second quarter 2023, and to recover only in 2024.