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Rising mortgage rates continue to put off would-be homebuyers, although demand for purchase loans is still slightly stronger than it was a year ago when rates were soaring toward post-pandemic highs.
A weekly survey of lenders by the Mortgage Bankers Association showed purchase loan applications were down by a seasonally adjusted 5 percent last week when compared to the week before, but up 3 percent from a year ago.
With requests to refinance also down 8 percent week over week but still accounting for 46 percent of all applications, overall demand for mortgages was at the lowest level since July, MBA Deputy Chief Economist Joel Kan said in a statement.
Putting a positive spin on the numbers, Kan noted that purchase applications continued to run stronger than last year’s pace for the fifth consecutive week.
Joel Kan
“Even though rates have been on a recent upswing, they are over a full percentage point lower than a year ago, which has kept some homebuyers in the market,” Kan said. “For-sale inventory has started to loosen, and home-price growth has eased in some markets, providing more options for buyers in combination with these lower rates.”
But at this time last year, rates on 30-year fixed-rate loans were climbing toward a 2023 peak of 7.83 percent registered on Oct. 25, according to rate lock data tracked by Optimal Blue.
Mortgage rates on the rebound
Mortgage rates had been coming down dramatically this year on expectations that the Federal Reserve would soon begin cutting rates, to the point that consumers were locking rates on 30-year fixed rate loans at a 2024 low of 6.03 percent on Sept. 17.
But mortgage rates have been on the rebound ever since Fed policymakers approved a generous 50 basis-point reduction in the short-term federal funds rate on Sept. 18.
It was the first time the central bank had brought short-term interest rates down in four years. However, long-term rates immediately headed back up, as bond market investors who fund most mortgages fretted about inflation and recalibrated their expectations about the pace of future rate cuts.
The “dot plot” issued by Fed policymakers last month indicated they would be cautious about the pace of further cuts, and some hawkish members of the Federal Open Market Committee this week expressed worries about whether inflation has truly been tamed.
At 6.60 percent as of Tuesday, rates on 30-year fixed-rate mortgages are still well below the 2024 high of 7.27 percent registered on April 25. But rates for the most popular mortgage for homebuyers are up more than half a percentage point in a little more than a month.
Even first-time homebuyers taking out FHA-backed loans could expect to be offered rates around 6.24 percent this week, up from 5.81 percent on Sept. 25.
And for homebuyers in need of jumbo mortgages exceeding Fannie Mae and Freddie Mac’s conforming loan limit of $766,550, rates climbed to 6.88 percent last week, up from 6.33 percent on Sept. 18.
Many lenders are giving homebuyers who are officially in jumbo mortgage territory a break, pricing loans that are expected to come in under higher 2025 loan limits as conforming.
Worst year for existing home sales since 1995?
Elevated mortgage rates, along with inventory shortages in many markets that have helped prop up home prices, have created affordability challenges for homebuyers that have hindered sales.
Demand for homes remains above long-term averages, but scarce inventory means sales aren’t likely to pick up until mortgage rates move closer to 5 percent, analysts at Fitch Ratings said last month.
Existing home sales were down 3.5 percent from a year ago in September to a seasonally adjusted annual rate of 3.84 million, according to the latest numbers from the National Association of Realtors.
According to NAR, there were 260,000 more homes on the market at the end of September than a year ago — a 23 percent increase. But the slow pace of sales means it would take 4.3 months for buyers to snap up those 1.39 million homes.
With anything less than a 6-month supply of inventory generally considered to be a seller’s market, homeowners in many markets aren’t willing to slash their asking price. At $404,500, the median sale price in September was up 3 percent from a year ago.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said that home price appreciation should decelerate next year and undershoot the “subdued growth rate” in household income.
Samuel Tombs
“Demand is currently so weak that it would now take four months to sell all of the existing homes on the market — the same as in the late 2010s — despite a one-third fall in the number of properties for sale since then,” Tombs said in a note to clients Wednesday.
Tombs said Pantheon forecasters expect housing market activity “to remain subdued well into 2025.”
“The average interest rate on existing mortgages is just 4 percent, well below the current 6.5 percent rate for new mortgages,” Tombs said. “As a result, interest payments for most existing homeowners will jump if they move home, creating a huge incentive to stay put. Only large Fed policy easing will meaningfully change this calculus.”
In September, Fannie Mae economists predicted this year would be the slowest year for sales of existing homes since 1995.
In their latest forecast, economists at the mortgage giant projected that the surprising strength of the U.S. economy means home prices are likely to keep rising, and mortgage rates may not come down as quickly as previously expected.
New home sales a bright spot
Source: Fannie Mae housing forecast, October 2024.
Fannie Mae forecasts existing home sales will decline by 30,000 this year to 4.06 million. But 7 percent growth in new home sales is expected to boost total home sales to 4.77 million — 16,000 more than last year.
“We have upwardly revised our new home sales outlook given the decline in interest rates in our forecast this month, and we continue to expect the dearth of existing homes being listed for sale to help support new home sales and lead to a gradual increase over the forecast horizon,” Fannie Mae forecasters said in releasing their Oct. 10 forecast.
An MBA survey tracking mortgage applications for new home purchases showed demand for new homes was up 10.8 percent in September compared to a year ago.
“New home sales continue to be an appealing option for prospective homebuyers as mortgage rates were lower during the month and more newly built options have been coming onto the market,” Kan said. “The FHA share of applications was elevated to almost 29 percent, a sign that first-time buyers are active.”
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