Oct 25, 2023
US Mortgage Rate Nears 8%, Further Suppressing Housing Demand
, Bloomberg News
(Bloomberg) -- A measure of applications to finance home purchases slid to the lowest level since 1995 as mortgage rates approached 8%, underscoring how mounting affordability challenges are crimping demand.
The Mortgage Bankers Association’s index of home-purchase applications decreased 2.2% in the week ended Oct. 20 to 127, the lowest level since 1995. The contract rate on a 30-year fixed mortgage climbed for a seventh-straight week to 7.9%, data out Wednesday showed.
Taking mortgage-related fees and compound interest into account, the effective rate surpassed 8% for the first time in 23 years. The rate on a five-year adjustable mortgage climbed almost half a percentage point, the most since early June, to almost 7%.
Ryan Marshall, chief executive officer at PulteGroup Inc., said Tuesday on the homebuilder’s earnings call that “demand has been a little choppier” in early October. “I’m sure for some buyers, higher rates have pushed affordability just that much further away, while others may be worried about their jobs.”
Mortgage rates tend to move in tandem with Treasury yields. With the 10-year yield rising above 5% for the first time in 16 years earlier this week, home borrowing costs are at risk of climbing further in the weeks ahead.
Since the first week of April, the contract rate on a 30-year fixed mortgage has soared more than 1.5 percentage points.
Without a meaningful easing in borrowing costs, it’s not clear when affordability — currently at a record low — will improve for potential buyers. With inventory limited, prices remain high.
Read More: US Housing Affordability Worsens to New Record Low on High Rates
The overall index of applications, which includes purchases and refinancings, also fell to the lowest level since 1995. Refinancing activity picked up slightly.
The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.
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