Mortgage demand plunged to a 22-year low this week as rising interest rates and a lack of inventory cooled demand among potential home buyers.
The volume of mortgage loan applications fell by 6.5% during the week ending June 3 compared to the previous week, according to the latest data from the weekly survey of the Association of Mortgage Bankers.
The fall occurred when the average contractual interest rate on 30-year fixed-rate mortgages with compliant loan balances rose to 5.40% from 5.33% in the same period. Higher rates add to the financial pressure on homebuyers facing record prices in the open market.
“The shopping market has suffered from a persistently low housing inventory and the jump in mortgage rates over the past few months,” said Joel Kan, MBA’s associate vice president of economic forecasting and industry.
“These challenges that make affordability worse have been especially tough for potential first-time buyers,” he added.
The lack of inventory has contributed to rising house prices. Getty Images
The MBA’s purchasing index, a measure of the volume of home mortgage applications, was down 7% from the previous week and down 21% from the same week a year ago.
Refinancing applications also fell, down 6% from last week and a whopping 75% year-on-year.
“While rates were still lower than four weeks ago, they are still high enough to suppress refinancing activity. Only government refinancing experienced a slight increase last week,” Kan added.
Mortgage rates have risen in recent months as the Federal Reserve launches its plan to tighten monetary policy by raising benchmark interest rates. The central bank aims to make credit more expensive in order to cool the economy and curb inflation, which has reached four-decade highs.
Mortgage rates have risen steadily in recent months. Getty Images
According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 5.23% in May, up 3.45% in January. Rising mortgage rates could lead to a drop in house prices as sellers react to the difficult environment.
Nationwide home prices rose 20.6% in March from the same month last year, according to the most recent S&P CoreLogic Case-Schiller home price index released in May.
The rise was higher than in February, when house prices rose by 20% year-on-year.