Mortgage demand sank to its lowest level in 22 years this week as rising interest rates and a lack of inventory cool demand among potential homebuyers.
The volume of mortgage loan applications sank by 6.5% for the week ending on June 3 compared to the previous week, according to the latest data from the Mortgage Bankers Association’s weekly survey.
The downturn occurred as the average contract interest rate on 30-year fixed-rate mortgages with conforming loan balances rising to 5.40% from 5.33% over the same period. Higher rates are adding to the financial squeeze on home shoppers who are facing record prices on the open market.
“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting.
“These worsening affordability challenges have been particularly hard on prospective first-time buyers,” he added.
The MBA’s purchase index, a measure of the volume of applications for mortgages to buy homes, dropped 7% compared the previous week and was down 21% compared to the same week one year ago.
Refinance applications also moved lower, dropping 6% compared to last week and a whopping 75% year-over-year.
“While rates were still lower than they were four weeks ago, they remain high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” Kan added.
Mortgage rates have risen in recent months as the Federal Reserve initiates its plan to tighten monetary policy by hiking benchmark interest rates. The central bank is aiming to make credit more expensive in a bid to cool the economy and tamp down inflation that has reached four-decade highs.
The average rate of a 30-year fixed rate mortgage was 5.23% in May, up from 3.45% as recently as January, according to Freddie Mac. Rising mortgage rates could result in a downtick in home prices as sellers react to the difficult environment.
Home prices across the country jumped 20.6% in March compared to the same month one year earlier, according to the most recent S&P CoreLogic Case-Schiller Home Price Index released in May.
The uptick was higher than it was in February, when year-over-year home prices increased 20%.