US Mortgage Applications Slump in Face of 40-year High Inflation

Mortgage demand slumped to its lowest level since 2000 as record-high inflation and aggressive interest rates continue to weigh on U.S. consumers. The inflation has significantly weakened consumers’ purchasing power as rates have nearly doubled over the past few months.

Measure of Mortgage Applications at the Lowest Point Since 2000

New findings show that the number of applications for a mortgage to buy a home is down 7% this week and 19% lower than in the same week last year. The slump in demand pushed the Mortgage Bankers Association’s market index to its lowest point since February 2000, according to the recently published data.

The slump comes after a significant slowdown in activity in the housing market as mortgage rates continue to hover around the highest level since 2008. Another data report also showed that existing-home sales declined for a fifth consecutive month in June to a two-year low.

“Purchase activity declined for both conventional and government loans as the weakening economic outlook, high inflation and persistent affordability challenges are impacting buyer demand,”

said Joel Kan, an economist for the MBA.

Mortgage rates jumped again last week after sliding down over the past three weeks. The average contract interest rate for 3-year fixed-rate mortgages with conforming loan balances rose to 5.82% from 5.74%, compared to 3.11% in the same week last year.

The number of mortgage applications to refinance a home was down 4% for the week 80% lower than in the year-ago week. While the number of these applications is also at its lowest point in 22 years, the slump in demand from homebuyers prompted a 31.4% jump in the refinance share of mortgage activity, compared to 30.8% last week.

“[W]ith most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet,”

Kan said.

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Mortgage Rates Could Jump Again Amid Bond Market Volatility

Mortgage interest rates haven’t significantly spiked this week but it may not remain that way given the rising volatility in the bond market. Furthermore, the Federal Reserve is widely expected to introduce another 75 basis points rate hike next week following the latest consumer price index (CPI) print that showed inflation rose again in June to 9.1%.

Matthew Graham, chief operating officer of Mortgage News Daily, said the volatile bond market could affect mortgage rates in the coming days – particularly next week when the markets react to the upcoming Fed policy announcement next Wednesday.

Reports from last week suggest that the increase in futures on the federal funds rate has increased the possibility of a 100 basis points (bps) hike next week, instead of the anticipated 75 bps hike. Fed funds futures noted a 0.2% chance of a 100 basis-point hike this month before the latest CPI print. That percentage jumped to 33% after the CPI data release.

Do you think mortgage demand will keep weakening in the second half of 2022? Let us know in the comments below.