Mortgage demand plummets to new three-decade low as rates race toward 8%

A key measure of home-purchase applications tumbled last week to a nearly three-decade low as consumer demand cooled sharply amid a recent spike in mortgage rates.

The Mortgage Bankers Association’s index of mortgage applications fell 6.9% last week to the lowest level since 1995, according to new data published Wednesday. 

The data also showed that the average rate on the popular 30-year loan climbed for the sixth straight week to 7.7%, the highest level since November 2000.

“Homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory,” said Joel Kan, MBA’s deputy chief economist.

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Homes in Hercules, California, on Aug. 16, 2023. (David Paul Morris/Bloomberg via / Getty Images)

The steep rates weighed heavily on housing demand, with applications for a mortgage to purchase a home also tumbling 5% for the week. Application volume is down 21% compared with the same time last year.

Demand for refinancing also fell further last week, sliding another 10%, according to the survey. Compared with the same time last year, refinance applications are down 12%.

“Refinance activity was at its lowest level since early 2023,” Kan said. “There is very limited refinance incentive with mortgage rates at multi-decade highs.”  

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The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive tightening campaign. Policymakers already lifted the benchmark federal funds rate 11 consecutive times as they try to crush stubborn inflation and slow the economy. 

Officials signaled during their policy-setting meeting in September that another rate hike is on the table this year – and that rates are likely to remain elevated for some time.

The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive tightening campaign. (David Paul Morris/Bloomberg via Getty Images / Getty Images)

Not only are higher mortgage rates dampening consumer demand, but they are also limiting inventory.

That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.

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A recent report from Realtor.com shows that the total number of homes for sale, including homes that were under contract but not yet sold, fell by 4% in September compared with the same time a year ago. 

Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.