The numbers: As mortgage rates head towards 6%, would-be home buyers continue to stay on the sidelines, putting off purchases and refinances.
Weak demand from buyers is reflected in the Market Composite Index, a measure of mortgage application volume. The index is at its lowest level in 22 years, the Mortgage Bankers Association (MBA) said on Wednesday.
The market index fell 0.8% to 258.1 in the week ending Sept. 2. One year ago, the index stood at 705.6.
The big picture: Rates and home prices show no signs of falling sharply in the near-term, so buyers are choosing to wait. That means the downturn in housing is likely to persist.
Some sellers and builders are so put off by the fall in buyer demand that they’re pivoting to the rental market .
But amidst all this gloominess, things are likely to turn around soon, the MBA said.
“Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand,” Mike Fratantoni, senior vice president and chief economist at the MBA, said in a statement.
In other words, rates aren’t likely to fall significantly, but a better job market translates to higher wages, which means people can afford more. Plus, the inventory of homes is also increasing. That’ll lead to an “eventual increase in purchase activity,” Fratantoni said.
But for now, there’s “no sign of a rebound in purchase applications yet,” he added.
Key details: The Refinance Index dropped by 1.1% and was down 83% compared to a year ago.
The Purchase Index — which measures mortgage applications for the purchase of a home — fell by 0.7% from the previous week.
The average contract rate for a 30-year mortgage for homes sold for $647,200 was 5.94% for the week ending Sept. 2. That’s up from 5.8% the week before, the MBA said.
For homes sold for over $647,200, the average rate for the 30-year was 5.46%. The 15-year rose to 5.23%.
The rate for adjustable-rate mortgages, which comprise 8.5% of total applications, rose to 4.81%.
What are they saying? Home purchase applications are down by 40% in August, compared to January of this year, Sam Hall at Capital Economics wrote in a note.
Hall expects demand to fall further in the coming months as rates will rise above 6%.
: The yield on the 10-year Treasury note
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