Rising Interest Rates, Record-Breaking Inflation Results in 22-Year Low in Mortgage Demand

DENVER, CO – The current economic hardship being foisted upon Americans in the form of a 40-year high in inflation, combined with rapidly-rising interest rates on home loans – after hitting historic lows during the COVID-19 pandemic – has resulted in the demand for mortgages reaching a 22-year low, a new report says.

According to the Mortgage Bankers Association’s (MBA) seasonally adjusted index, demand for home mortgages have reached their lowest point since 2000, having dropped over 6 percent week-over-week last week. Home loan applications last week were 19 percent lower than the same period of time in 2021 and 7 percent lower than just the week before.

During the pandemic, buyers were forced to contend with rapidly-rising home prices in a marketplace heavily favoring sellers; however, those prices were offset in-part with cheap home loans driven by COVID-19, with the average rate for a standard 30-year fixed-rate mortgage hitting 2.68 percent in December 2020, and remaining in the neighborhood for much of the pandemic.

Currently, rates are now hovering near 6 percent, which represents a great deal less buying power for borrowers according to Joel Kan, an economist for the MBA.

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

The amount that interest rates have been rising week-to-week has had a negligible impact upon buyers as a whole; however, the degree they have risen over time has had a noticeable effect on the buying power of the average prospective homebuyer, and those rates are projected to continue to increase as the country’s battle with record inflation goes on. Mortgage rates dropped slightly in the past three weeks – giving people hope – but then surged upwards once again this week.

Last week, the interest rate on a 30-year mortgage was 5.74 percent, but rose to 5.82 percent this week, with points increasing to 0.65 from 0.59 for loans with a 20 percent down payment, in contrast, that rate was 3.11 percent during the same period of time one year prior.

Refinancing loans, which are very much dependent on the current going rate, are also showing signs of struggling, with demand dropping 4 percent last week and 80 percent year-over-year; the situation has resulted in the amount of applications being submitted hitting their lowest point in 22 years, but the decrease in demand resulted in the refinance share of mortgage activity to increase to 31.4 percent of total applications from 30.8 percent the previous week.

Interest rates on mortgages have remained stable this week so far, but experts expect that to potentially change soon due to increasing volatility in the bond market. The Federal Reserve, in an attempt to curb inflation and avoid a recession, is anticipated to hike their interest rates next week by a whopping 75 basis points, possibly the largest such increase in history.

As mortgage rates tend to be heavily influenced by the Fed’s rate hikes, it is expected that this may drive mortgage rates up further as a result, especially with international banks expected to follow suit with interest rates of their own, according to Matthew Graham, chief operating officer of Mortgage News Daily.

“This is especially true next week as markets digest the newest Fed policy announcement next Wednesday, but Thursday’s policy announcement from the European Central Bank could also cause enough of a stir to impact U.S. rates,” he said.