Mortgage applications decreased in MBA weekly survey.

Mortgage applications decreased in MBA weekly survey.

U.S. Housing Market Sees Decline in Mortgage Applications Amidst Challenging Conditions

It’s been a tough ride for the U.S. housing market recently, as high home prices and robust interest rates continue to impact the industry. The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 21, 2023, reveals that weekly mortgage applications have declined, reflecting the challenges faced by potential homebuyers and current homeowners.

According to the survey, the Market Composite Index, which tracks U.S. mortgage loan application volume, has slid by 1.8% from the previous week. Moreover, mortgage refinancing activity has plummeted due to sky-high lending rates, with a 0.4% decrease in home refinancing loans in the past week alone. Over the last year, refinancing activity has fallen by a staggering 30%, indicating the impact of rising interest rates on homeowners.

Home purchases are also on the decline, as the unadjusted housing buys have dropped by 2% compared to the previous week and 23% from the same period in 2022. Marty Green, a principal at the Dallas-based mortgage law firm Polunsky Beitel Green, explains the reasons behind this decline, stating, “The combination of interest rates hovering around 7% and a decrease in housing inventory has caused loan applications to decline. The higher interest rates make sellers less interested in selling since the rate on what they buy will be substantially higher than the rate most homeowners enjoy on their current mortgage today.”

Furthermore, buyers are becoming increasingly hesitant to enter the market. Green suggests that the oppressive heat and summer doldrums may play a role, but it is primarily concerns about housing inventory and interest rates that are causing potential buyers to pause their plans.

The Fed’s Latest Move Could Pave the Way for Change

The recent quarter-point interest rate hike by the U.S. Federal Reserve, raising rates from 5.25% to 5.50% on July 26, could mark the end of rate increases for the foreseeable future. This development could potentially have a significant ripple effect on the U.S. housing market.

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Mark Buskuhl, Founder and CEO at Ninebird Properties in Plano, Texas, believes that if the Fed refrains from further rate hikes, borrowing costs could decrease, creating more favorable conditions for potential homebuyers to qualify for financing. This, in turn, may lead to an influx of new mortgage applications as borrowers seize the opportunity to take advantage of lower interest rates.

Marty Green also highlights the potential impact of the Fed’s decision, stating, “Mortgage bonds today are trading at an abnormally high premium relative to treasury rates, and that premium should begin to melt once the Fed’s terminal rate is more evident.”

With the possibility of reduced borrowing costs and improved access to financing, prospective homebuyers may regain confidence and consider making their move in the housing market, boosting mortgage application numbers.

In conclusion, the U.S. housing market is currently experiencing a decline in mortgage applications due to high home prices, robust interest rates, and limited housing inventory. However, the recent interest rate hike by the Federal Reserve could pave the way for change. If the Fed decides to halt further rate increases, borrowing costs may decrease, making it easier for potential homebuyers to secure financing. This could potentially lead to a surge in mortgage applications and breathe new life into the housing market.

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