- According to data from Mortgage Bankers Association, mortgage applications fell to their lowest level since 1997.
- Last week, the 30-year fixed rate rose to 7.14%. This is close to its highest level since 2001.
- With Fed’s hawkish policy, the housing market has become increasingly difficult to finance.
According to data from Wednesday’s Mortgage Bankers Association, mortgage applications dropped to a 25 year low while borrowing costs continued their climb.
The MBA’s overall activity index fell 0.1% for the week ending November 4. Refinancing demand dropped 4% to a 22 year low while applications to purchase a home climbed 1.3%.
The 30-year fixed mortgage rate, which is the most in-demand mortgage product, rose by 7.14% to 7.14% last Wednesday, a near record since 2001 when it was 7.06%.
“Mortgage prices edged higher last week due to news that Federal Reserve will continue increasing short-term rates to combat high inflation. Joel Kan, MBA’s deputy chief economic advisor, stated that the 30-year fixed rate was at 7% for the third week in a row. There were increases for all loan types.
Housing is especially sensitive to changes in Federal Reserve interest rates. With policymakers embarking upon a hawkish campaign, housing has become increasingly unaffordable.
By raising interest rates — and thus pushing mortgage rates higher — the Fed aims to cool down the economy by making Americans tighten their belts.
November 2nd, saw the Fed make its fourth consecutive 75-basis point rate hike and signal that a pause is possible.
As housing becomes more expensive, homebuyers look for cheaper financing options such as adjustable-rate mortgages. Last week’s five-year adjustable mortgage rate reached 5.87%, which is the highest level since 2011.
Activity in the The correction is already underway in the US housing marketLast month, Comerica’s chief economist Bill Adams wrote this in a note. He predicts steeper price declines in cities with higher prices and that new home sales will fall 25% next year.
