Mortgage rates increased for the sixth straight week, averaging 7.63% as of Oct. 19, according to the Primary Mortgage Market Survey from Freddie Mac.
Climbing mortgage rates continue to negatively impact the demand and supply side of housing: Many prospective home buyers are priced out of the market and remain on the sidelines, would-be home sellers are hesitant to list houses and give up significantly lower rates, and home builders are losing confidence, reflected in fewer permits.
“Mortgage rates continued to approach 8% this week, further impacting affordability,” says Sam Khater, chief economist for Freddie Mac. “Not only are home buyers feeling the impact of rising rates, but home builders are as well. Incoming data shows that the construction new homes rebounded in September, but as rates keep rising, home builders appear to be losing confidence. As a result, we expect construction to trend down in the short term.”
Increased buyer hesitancy amid higher rates is reflected in the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey, which indicated applications fell to their lowest level since 1995. For the week ending Oct. 13, applications fell 6.9% on a week-over-week basis.
The MBA’s unadjusted purchase index decreased 5% compared with the previous week and was 21% lower than the same week a year ago.
“Purchase applications were 21% lower than the same week last year, as home buying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory,” says Joel Kan, MBA’s vice president and deputy chief economist.
The adjustable-rate mortgage share increased to 9.3%, its highest share in 11 months, as buyers search for alternatives to lower monthly payments.
The decrease in resale inventory and limited existing-home sales is expected to translate in the lowest volume of activity for the full calendar year since 2008, according to Redfin.
“Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low,” says Chen Zhao, Redfin’s economic research lead. “The last time home sales were this low was during the Great Recession. At that time, tough economic conditions and slow demand pushed home prices down 30% year over year in some parts of the country, creating an opportunity for first-timers to snatch up starter homes—but this time, there’s no deal to be had.”
