• October 6, 2022

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Topline

Mortgage rates plummeted last week in the latest sign rising interest rates have started to temper demand in the booming housing market, but experts note plunging demand won’t quickly pull prices down due to historically low levels of inventory, with some forecasting prices should continue to rise throughout the year.

Key Facts

Mortgage applications fell 6.5% from one week earlier in the week ending June 3, according to the Mortgage Bankers Association’s weekly mortgage applications survey.

In a statement, MBA’s Joel Kan noted rising interest rates, spurred by the Federal Reserve’s efforts to combat inflation, have made home-buying more expensive and, as a result, pushed down both purchase and refinance applications to the lowest level in 22 years.

Though they plunged early in the pandemic, mortgage rates have skyrocketed since the Fed started hiking rates in April, with the latest 30-year fixed-rate mortgages averaging about 5.1%, up from less than 3% one year earlier.

“Persistently low” housing inventory has also fueled prices and stunted demand, Kan said, adding that the “worsening affordability challenges have been particularly hard on prospective first-time buyers.”

In a note last week, Bank of America economists told clients that affordability has fallen to lows last seen during the housing crisis that spurred the Great Recession, and warned that low supply will likely drive prices up another 15% this year.

The latest data comes after S&P CoreLogic reported last week that home prices skyrocketed at the highest rate in 35 years in March, with S&P DJI managing director Craig Lazzara adding that it’s still unclear how long it will take for price gains to start decelerating.

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Surprising Fact

The median new house price hit a record $450,600 in April, soaring nearly 20% year over year, according to the Census Bureau.

Key Background

Historically high savings rates, government stimulus measures, low supply and interest rates helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have emerged as the Fed embarks on its most aggressive interest-rate hiking cycle in two decades. According to data released last month, pending home sales slid for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales plunged nearly 17% from March.

Crucial Quote

“Although one can safely predict that price gains will begin to decelerate, the timing of the deceleration is a more difficult call,” Lazzara says

Further Reading

Home Prices Surge 20.6% In Biggest Spike This Century (Forbes)

Pending Home Sales Plunge To Lowest Level In Nearly A Decade—Worst Could Be Yet To Come (Forbes)

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