Mortgage Demand Slumps Again Despite Rates Easing as Housing Downturn Intensifies

A home is offered for sale in Chicago, Ill., on Jan. 20, 2022. Scott Olson/Getty Images

Even though mortgage rates eased down a bit, demand for mortgages fell for the week ended Oct. 28, according to data from the Mortgage Bankers Association (MBA).

The Market Composite Index, which measures mortgage loan-application volume, declined by 0.5 percent on a seasonally adjusted basis for the week ended Oct. 28 when compared to a week ago, according to an MBA press release on Nov. 2. The seasonally adjusted Purchase Index was down 1 percent from a week back.

“Mortgage applications declined for the sixth consecutive week despite a slight drop in rates. The 30-year fixed rate decreased for the first time in over two months, to 7.06 percent, but remained close to its highest since 2002,” said Joel Kan, MBA’s vice president and deputy chief economist.

As most homeowners are locked into lower mortgage rates, refinance applications were 80 percent lower when compared to last year. In addition, the share of refinance in total mortgage applications was only 28.6 percent, which is the fifth consecutive week the metric remained below 30 percent.

Other than the adjustable-rate mortgage loan rate, interest rates for all other loan types were more than three percentage points higher than they were a year earlier.

The elevated rates are putting pressure on both refinance and purchase activity, adding to the “ongoing affordability challenges” that are affecting the broader housing market, Kan added, while pointing to the deteriorating trends in home sales and housing starts.

The Federal Reserve is scheduled to meet on Wednesday, and is expected to raise its benchmark interest rates by another 75 basis points. If the central bank indicates more rate increases in the future, it would be bad news for the mortgage market.

Market Downturn

The housing market has been giving several indications of a downturn. Homebuilder confidence, as measured by the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index, fell for the tenth consecutive month in October, the longest continuous decline on record.

In a press statement, NAHB Chairman Jerry Konter warned that the situation is “unhealthy and unsustainable.” He called on policymakers to address the “worsening housing affordability crisis.”

Goldman Sachs and Moody’s Analytics each are expecting U.S. home prices to fall by 5–10 percent from their peak. Ian Shepherdson, chief economist at Pantheon Macroeconomics, is estimating up to a 20 percent fall next year due to declining demand.

In an interview with CNN, Sam Khater, chief economist at mortgage lender Freddie Mac, warned that the housing market is stagnating due to elevated interest rates.

“Many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward,” he said.