An 'open house' flag is displayed outside a single-family home on September 22, 2022 in Los Angeles, California. (Photo by Allison Dinner/Getty Images)
More potential homebuyers are backing out of the housing market, as interest rates continue to climb. Mortgage applications fell 13.2 percent from two weeks ago, according to the Mortgage Bankers Association (MBA), while the average 30-year fixed rate mortgage jumped to 6.58 percent from 6.34 percent from two weeks ago.
“The end of the year is typically a slower time for the housing market, and with mortgage rates still well above 6 percent and the threat of a recession looming, mortgage applications continued to decline over the past two weeks to the lowest level since 1996,” said Joel Kan, vice president and deputy chief economist at the MBA, in a press release.
Refinancing is also plummeting from its 2021 highs. The association's holiday adjusted index tracking the activity decreased 16.3 percent from the two weeks ago and 87 percent from the same week a year ago, when mortgage rates were half what they are now.
"Mortgage rates are lower than October 2022 highs, but would have to decline substantially to generate additional refinance activity," Kan said.
The upside of the pullback in mortgage applications is that price growth is finally beginning to slow. The most recent S&P CoreLogic Case-Shiller home price index numbers showed a 9.2 percent annual gain in October, down from 10.7 percent in the previous month, and a 0.5 percent month-over-month decrease.
“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be a headwind for home prices," said Craig J. Lazzara, managing director at S&P DJI in a press release. "Given the continuing prospects for a challenging macroeconomic environment, prices may well continue to weaken."
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The average rate on a 30-year mortgage fell 0.06% last week. Although the rate is much higher than it was two years ago, the decline could relieve buyers already dealing with low inventory and high prices.
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