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The
Mortgage Bankers Association said the average contract rate on a
30-year fixed-rate mortgage climbed 15 basis points to 7.31% in
the week ended Aug. 18. That came after yields on the government
bonds that influence home-loan rates surged to the highest since
the 2007-2009 financial crisis.
Yields on Treasury securities have marched higher throughout the
summer as surprisingly strong data on the U.S. economy reshaped
investors' thinking about how long the Federal Reserve will keep
interest rates high. The Fed has lifted its benchmark policy
rate from near zero in March 2022 to 5.25% to 5.50% currently to
beat back the toughest inflation since the 1980s.
In an otherwise resilient economy featuring a strong job market
and robust consumer spending, the housing market has stood out
as the sector most afflicted by the Fed's aggressive actions to
cool demand and undercut inflation.
As borrowing costs surged, home sales tumbled all last year and
a hoped-for recovery this year has yet to materialize. Case in
point: Sales of previously owned homes, accounting for the
majority of U.S. residential real estate transactions, fell for
a second month in July to the lowest pace since January.
The MBA data does not point to improvement any time soon. Its
index of home mortgage applications sank 5% last week to the
lowest since April 1995. It was the largest weekly decline since
April.
Joel Kan, MBA's deputy chief economist, said, "Homebuyers
withdrew from the market due to the elevated rate environment
and the erosion of purchasing power. Low housing supply is also
keeping home prices high in many markets, adding to the
affordability hurdles buyers are facing."
Applications to refinance existing loans fell to the lowest
since December, the MBA data showed.
The vast majority of homeowners with existing mortgages have a
loan from before interest rates began surging in 2022, which has
been a headwind for refinancing activity. That dynamic is also
contributing to the lack of housing supply because it is a
disincentive to move.
(Reporting By Dan Burns; Editing by Cynthia Osterman)
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