The effects of rising interest rates coupled with continuing economic uncertainty have caused mortgage demand to fall to its lowest level since 1995. According to a report from the Mortgage Bankers Association, mortgage applications for home purchases and refinancing declined 4.3% from last week, hitting their lowest levels since December 1995.
The decline is largely attributed to the increase in mortgage rates, which reached their highest levels since September 2008 last week. According to Freddie Mac, the average rate for a 30-year mortgage rate rose to 7.99%, and many forecasts are predicting that rates could hit 8% in the coming weeks.
As rates have increased, so has the cost of homeownership. The current rates are now as much as 1.5% higher than they were at the beginning of the year. For example, a $300,000 mortgage at the current 7.99% rate would cost $751 more per month in principal and interest than at the start of the year. This increase in monthly payments has made it difficult for some prospective homebuyers to qualify for a loan.
Additionally, the combination of higher rates and economic uncertainty have caused some homeowners to reconsider taking on additional debt, and have thereby caused a decrease in refinancings. Although refinancings still account for the largest share of mortgage activity, it has declined for four straight weeks.
Overall, the decline in mortgage demand is indicative of a weakened housing market. Despite rates being near historically low levels, the increased cost of homeownership and the hesitancy of some buyers is having a negative impact on the market.