Analysts see growing signs of housing market slowdown ahead
The US mortgage market has seen another drop in applications, with both refinance and purchase loan activity declining further as demand tumbles.
According to the Mortgage Bankers Association, overall mortgage applications were down 6.3% on a seasonally adjusted basis from one week earlier. Applications haven’t fallen this much since 2000.
“Similarly, with most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet, with MBA’s refinance index also falling to a 22-year low,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
MBA’s refinance and purchase indices – seasonally adjusted – posted week-over-week declines of 4% and 7%, respectively. Consequently, the refinance share of mortgage activity grew six basis points to 31.4% of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 9.5% of total applications.
Read more: Refinance applications see double-digit increase
“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand,” Kan said. “The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”
The dynamics of soaring mortgage rates and house price growth will continue to slow down activity in the single-family purchase market, Freddie Mac said in its new quarterly forecast. The 30-year fixed mortgage rate is expected to average 5% this year and 5.1% in 2023. That is compared to its 3% average in 2021.
Meanwhile, home price appreciation will likely remain high in 2022, averaging 12.8% before slowing to 4% in 2023. House price growth was 17.8% in 2021.
“The Federal Reserve’s action to help manage inflation has created significant volatility in mortgage rates and, by extension, the housing market,” said Freddie Mac chief economist Sam Khater. “Although house price appreciation will grow at a more moderate rate, home prices remain high relative to homebuyer incomes. Taken together, these factors are exacerbating affordability challenges and causing a slowdown in the housing market.”
