A key measure of home-purchase applications fell last week to the lowest level since 1995 as high mortgage rates, surging inflation and steep home prices sapped consumer demand from the housing market.
The Mortgage Bankers Association’s index of mortgage applications tumbled more than 18%, the biggest weekly drop since 2015, to 147.1 for the week ended Feb. 17, according to new data published on Wednesday.
"This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected," said Joel Kan, MBA's vice president and deputy chief economist.
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The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy and slow the economy.
Policymakers already lifted the benchmark federal funds rate eight consecutive times and have signaled they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.
Although mortgage rates have fallen from a peak of 7.08% notched in November, they have recently reversed that trend and started to march higher amid rate-hike fears. The average rate for a 30-year fixed mortgage climbed to 6.32% last week, according to data from mortgage lender Freddie Mac. That remains significantly higher than just one year ago, when rates hovered around 3.92%.
"The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates," Kan said.
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Even with higher interest rates putting homeownership out of reach for millions of Americans, prices are still steeper than just one year ago. The median price of an existing home sold in January was $359,000, an increase of 1.3% from the same time a year ago, according to a separate report from the National Association of Realtors. This marks 131 consecutive months of year-over-year home price increases, the longest-running streak on record.
Prices, however, have moderated slightly after peaking at a high of $413,800 in June.
