Mortgage Applications Drop to Lowest Since 1996 Amid Rate Surge

Samantha Miller

The once red-hot housing market continues to cool rapidly in the face of surging mortgage rates, with total mortgage application volume dropping last week to levels not seen since the 1990s.

According to new data from the Mortgage Bankers Association (MBA), mortgage applications declined 0.8% over the past week compared to the previous week. This marks the seventh decrease in the last eight weeks, as higher borrowing costs take a bite out of demand.

In numbers not witnessed since 1996, the MBA’s seasonally adjusted index showed an overall mortgage market struggling to gain traction. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less rose to 7.27% from 7.21% the week prior.

With origination fees factored in, rates on loans with a 20% down payment reached 0.72 points, up from 0.69 points. This steady ascent in rates continues to dampen refinancing in particular.

Applications for refinancing fell 5% week-over-week and remain down a staggering 31% from the same period last year. Refinances now comprise just 29.1% of total mortgage application activity, versus 30.0% the previous week.

To put this decline in context, refinances accounted for a dominant 63% of all mortgage applications in the fall of 2020, when the Federal Reserve’s emergency policies drove rates down near 3%.

The drop-off in refinancing highlights how the Fed’s aggressive rate hikes to combat inflation have rapidly evaporated the refi boom. With little incentive to refinance at today’s rates, homeowners are sitting tight with their current mortgages.

Meanwhile, purchase applications managed a slight 1% gain over the week but remain 27% below year-ago levels. This indicates that while some resilient homebuyers are still finding a way into the market, demand is well off peak pandemic levels.

In a sign that buyers are searching for creative ways to lower costs, the MBA data showed increased demand for adjustable-rate mortgages (ARMs). ARMs offer lower initial rates but carry risk because the rates reset higher after an introductory period.

With affordability stretched thin, more home shoppers appear open to assuming the risks of an ARM in exchange for lower monthly payments. But for many in today’s market, owning simply remains out of reach.

“Mortgage applications decreased for the seventh time in eight weeks, reaching the lowest level since 1996,” noted MBA economist Joel Kan. “Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate.”

In other words, the classic give-and-take of housing market turnover has been disrupted by the affordability squeeze. Potential sellers are hesitant to give up lower existing rates, while buyers are reeling from sharply higher monthly costs.

According to a separate survey from Mortgage News Daily, rates early this week remain lofty by historical standards. But the market could see some volatility after Wednesday’s release of the Consumer Price Index, a closely watched inflation gauge.

“While it’s always possible that big-ticket data will thread the needle and result in minimal movement, there’s little question that any big departure from expectations will rock the bond boat for better or worse,” said Matthew Graham, chief operating officer at Mortgage News Daily.

In short, if inflation slows more than anticipated, mortgage rates could see some relief. But an upside surprise on inflation would likely trigger further selling in the bond markets that dictate mortgage pricing.

After a blistering two-year housing boom, the Fed’s inflation fight has certainly poured cold water on the mortgage market. Purchase demand sits 27% below year-ago levels, while mortgage rates are doubled from pandemic lows.

With applications at 25-year lows, the once-frenetic pace of the housing market has slowed to a crawl. And the Fed’s monetary tightening cycle still has room to run, suggesting the chill in mortgage demand may linger through 2023.

For potential homebuyers, the dream of homeownership has rarely been more distant. And existing homeowners eager to refinance or relocate face a markedly different environment than even one year ago.

Rising rates have pinched wallets and caused many to hit pause on major financial decisions. But while analysts say the housing cooldown will continue for some time, they also expect moderation rather than collapse.

Though mortgage activity sits at multi-decade lows, housing supply remains extremely tight. And with rents also surging, owning often still pencils out, even at today’s rates.

But affordability will test the resilience of buyers in the coming months. For homeowners and policymakers alike, the rapid ascent of rates provides a stark reminder that the era of cheap, easy credit cannot last forever.

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Samantha Miller is a business and finance journalist with over 10 years of experience covering the latest news and trends shaping the corporate landscape. She began her career at The Wall Street Journal, where she reported on major companies and industry developments. Now, Samantha serve as a senior business writer for, profiling influential executives and providing in-depth analysis on business and financial topics.
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