Demand for home loans continues to slump as mortgage rates last week rose to their highest level in almost 21 years.
Application volumes dropped to their slowest pace since December 1999, as the housing market slowed to a crawl.
Refinance volume plunged by 1.8 percent and was down 86 percent compared to a year ago.
The market index last week fell to 214.3, after standing at 686.1 points year over year, according to Marketwatch.
The average contract interest rate on a fixed 30-year mortgage with a conforming loan balance was 6.81 percent in the first week of the fourth quarter, the highest level since 2006.
Moves by Federal Reserve
Mortgage rates have experienced a regular increase across the board, due to the Federal Reserve’s move to combat inflation, putting an end to a 2-year purchasing boom.Fed Chair Jerome Powell said in September that the central bank will continue to hike policy rates further until the markets “go through a correction” and homes become affordable once again.
The markets are also expecting the Fed to eventually sell the mortgage-backed securities it had purchased to tighten up the economy, but Powell said last month that these sales would not be on the table anytime soon.
Average mortgage rates more than doubled in 2022, adding hundreds of dollars to the price of financing a home in detriment to potential homebuyers.
“Mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for 5-year ARM loans,” said Mike Fratantoni, the MBA’s senior vice president and chief economist, in a statement, adding that “the adjustable-rate mortgage, or ARM share of applications remained quite high at 11.7 percent – just below last week’s level.”
Meanwhile, the American labor market added 263,000 jobs last month, according to the Labor Department, as the unemployment rate fell to 3.5 percent.
Wage growth slowed down in September as average hourly earnings rose by 0.3 percent.
“However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.”