Oct 5, 2022 - Economy & Business

Mortgage rates hit 16-year high and applications fall

Illustration of construction workers analyzing a house on top of a stack of money.

Illustration: Trent Joaquin/Axios

Mortgage rates are continuing their upward climb, reaching levels not seen since 2006, while mortgage applications for house purchases were down 37% last week compared with a year ago.

Why it matters: Rising interest rates and bond yields are driving up the cost of borrowing, putting home buying out of reach for more Americans, and potentially dampening prices.

State of play: The average 30-year fixed rate mortgage hit 6.75% last week, its highest point in 16 years, according to the Mortgage Bankers Association.

  • At the same time, mortgage applications for new buyers plunged 13% from a week earlier, though the hurricane negatively impacted activity in Florida.
  • Adjustable-rate mortgages increased to 11.8% of total applications last week.

The big picture: Rates have more than doubled over the last 12 months.

  • Unsurprisingly, refinancing activity is rapidly slowing, accounting for the bulk of the decline in total mortgage applications.
  • "The surge in mortgage rates has cut refinancing activity by 77% since the start of the year to a double-decade low," Capital Economics property economist Sam Hall wrote Wednesday.

Threat level: For new buyers in September, mortgage payments represented more than 26% of their income, up from 17% in September 2021, according to Capital Economics estimates.

  • It "seems unlikely that mortgage applications will rebound in the coming months," Hall wrote. "If anything, we think there is room for them to edge down a little lower."

Yes, but: Just because the housing market is slowing down doesn't mean we need to brace for a total free fall, a la 2008.

  • Since housing inventory is still low, "we do not anticipate a housing market, or associated credit market, crash," Wells Fargo Investment Institute investment strategy analyst Michelle Wan wrote Monday in a research note.
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