Economists attribute the decline to high prices and interest rates rising to their highest mark in 20 years.
Mortgage applications fell for the fourth week in a row as existing home sales continued sliding and interest rates reached new records.
The National Association of Realtors (NAR) reported Thursday that existing homes sold at a seasonally adjusted annual rate of 4.71 million in September, down 24% from a year earlier and down 1.5% from August. It marked the eighth month in a row of declines.
NAR Chief Economist Lawrence Yun said the housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which surpassed 6% for 30-year fixed mortgages in September and are now approaching 7%.
“Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales,” Yun said.
Lawrence Yun
Applications for mortgages in the week ending Oct. 14 were 4.5% lower than the previous week after seasonal adjustments – the fourth week in a row of decline and continuing a generally downward trend over the past four months.
“Mortgage applications were down again last week as mortgage rates hit 20-year highs, and ongoing economic uncertainty and affordability challenges continue to impact borrower demand,” MBA President/CEO Bob Broeksmit said Thursday.
Bob Broeksmit
The refinance index fell 7% from the previous week and 86% from a year earlier. The seasonally adjusted purchase index fell 3% from the previous week and fell 38% from a year ago.
MBA Deputy Chief Economist Joel Kan said applications have fallen to their lowest level since 1997, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances hit 6.94% last week – the highest level since 2002.
The effective rate for a 30-year fixed rate mortgage that is 80% or less of value was 7.21% last week – up from 6.52% four weeks ago and 3.50% a year ago.
“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” Kan said. “Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates.”
Joel Kan
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.94% from 6.81% last week.
Broeksmit said the share of applications from adjustable rate mortgages (ARM) was at a 14-year high as prospective buyers turned to ARMs to reduce their monthly mortgage payment. “Even at 13%, however, the share of ARM applications is still roughly a third of the peak seen in the early 2000s,” he said.
NAR reported that home prices remain high. More than half of homes sold for at least $384,800 last month, an 8.4% jump from September 2021 as median prices climbed in all regions. Prices were lower than August. While it was the third monthly price drop since reaching a record high of $413,800 in June, it followed the usual seasonal trend of prices trailing off after peaking in the early summer.
Unsold inventory sat at a 3.2-month supply at the current sales pace – unchanged from August and up from 2.4 months in September 2021.
“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Yun said. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”
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