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Mortgage demand hits 22-year low during inflation, interest surge

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Demand for mortgages has crashed to a multi-decade low last week as prospective homebuyers contend with surging inflation and rising rates of interest, data released on Wednesday showed.

The quantity of mortgage loan applications sank 6.3% for the week ending on July 15 in comparison with one week earlier, in line with the most recent weekly survey from the Mortgage Bankers Association. The index measuring activity dropped to its lowest level since 2000.

Refinance applications also declined by 4% in comparison with the previous week and have fallen by 80% in comparison with the identical week one yr ago, the survey found.

“Purchase activity declined for each conventional and government loans, because the weakening economic outlook, high inflation, and chronic affordability challenges are impacting buyer demand,” said Joel Kan, associate vp of economic and industry forecasting on the Mortgage Bankers Association.

“The decline in recent purchase applications aligns with slower homebuilding activity resulting from reduced buyer traffic and ongoing constructing material shortages and better costs,” Kan added.

The MBA’s purchase index, which measures the quantity of applications for mortgages to purchase homes, fell 7% week-over-week and 19% year-over-year.

The downtick in mortgage demand coincided with a surge in rates of interest, which have nearly doubled since January because the Federal Reserve hikes its benchmark rate to combat inflation. While the Fed rate does indirectly impact mortgages, all types of borrowing have gotten costlier on the expectation of tightened economic policy.

The typical contract rate of interest on 30-year fixed-rate mortgages with conforming loan balances jumped to five.82% last week, up from 5.74% the previous week. The identical mortgage had a 3.11% rate throughout the same week one yr earlier.

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The most recent mortgage demand emerged days after the National Association of Home Builders/Wells Fargo Housing Market Index showed home builder confidence plummeted 12 points to 55 in July – hitting its lowest level since May 2020.

As Kan referenced, rising mortgage rates added to the financial pain for home buyers already facing sky-high prices – pricing some shoppers out of the market entirely.

One economist warned that the housing market may very well be on the verge of a “meltdown” resulting from the confluence of negative trends.

The Fed is predicted to extend rates of interest by one other three-quarters of a percentage point at a gathering next week following dismal June inflation data that showed prices jumping 9.1%.

Many investors expect the central bank to implement a good sharper hike of a full percentage point, though some policymakers have expressed skepticism that it’ll actually occur.

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