US homebuyers’ enthusiasm has beeen dampened by the spike of mortgage rates as suggested by the sharp decline of mortgage purchase applications over the past sixteen weeks. They reached the lowest level since February 1995, according to data out Wednesday.
*This article was written by Christophe Barraud and was republished with consent.
According to the Mortgage Bankers Association (MBA), for the week ending October 13, 2023, mortgage purchase applications decreased by 5.6% on a seasonally adjusted basis from the previous week (v +0.7% prior). The index was down 23.8% over the past sixteen weeks. It reached the lowest level since February 1995.
The decrease in purchase activity can be attributed to various factors, notably including the soaring mortgage rates and limited inventory. According to data released on Wednesday, there was a slight increase of 3 basis points in the contract rate for a 30-year fixed mortgage, reaching 7.7%. This marks the sixth consecutive weekly rise. Additionally, the rate for a five-year adjustable mortgage saw a significant jump of 19 basis points, reaching 6.52%, which is the second-highest recorded in MBA data going back to 2011.
Separately, on Wednesday, Bankrate.com data showed 30-year mortgage rates reached 8%, the highest rate since June 2000. In the meantime, Mortgage News Daily also noted the widely-followed 30-year fixed mortgage rate reached 8%. This development coincided with a surge in bond yields, reaching levels not witnessed since 2007. Mortgage rates tend to loosely track the yield on the 30-year U.S. Treasury.
This situation is expected to have a significant effect on closed sales from October to December. Existing home sales for September are already expected to decrease further, probably hitting a 13-year low.
It comes as other housing data point to weakness. In October, the sentiment among US homebuilders reached its lowest point in nine months. The National Association of Home Builders/Wells Fargo index dropped for the third straight month. Measures evaluating both present and anticipated sales, along with a gauge of potential buyer traffic, also hit their lowest levels since the beginning of the year.
About the Author:
Christophe Barraud is Chief Economist and Strategist at Market Securities. He has been awarded by Bloomberg the title of Top Forecaster of the U.S. Economy (from 2012 to 2020 and in 2022), Eurozone Economy (from 2015 to 2019 and in 2022) and Chinese Economy (from 2017 to 2020). He also won the latest Forecaster of the Year contest organized by MarketWatch in 2020. Since 2021, he has been Adjunct Lecturer at ESCP in the MSc Finance, which has been ranked first worldwide in the 2023 Financial Times Masters in Finance ranking.