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Housing Market Crash Alert: Mortgage Demand Raises Red Flags

Source: Yalanskyi

Fears of a housing market crash are being stoked this week as new data shows that mortgage demand is slipping as mortgage rates continue to climb.

Indeed, mortgage application demand fell 2.7% last week, compared to the week prior, as mortgage rates jumped to their highest level since November — rising for the third week in a row. This pushed the average contract interest rate for 30-year fixed rate mortgages to 7.24% from 7.13%, per the Mortgage Bankers Association (MBA).

Applications to refinance fell even more dramatically, slipping 6% from the week before, although they’re actually up “3% higher than the same week one year ago.”

Next, applications for a mortgage to purchase a home fell 1% last week, down a staggering 15% year-over-year (YOY). High interest rates and seemingly perpetually rising prices have pushed would-be homebuyers largely out of the market, as seen in mortgage applications.

“Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply,” noted MBA Deputy Chief Economist Joel Kan, per CNBC.

Will the Housing Market Crash?

The notion of falling mortgage applications should likely spark the same question for many hopeful homebuyers: Will this push home prices down?

Well, probably not. Mortgage applications overall have been down for much of the past year with interest rates as high as they are. This has, unfortunately, had little affect on home prices, which seem to rise regardless of the conditions surrounding housing demand.

Largely attributable to the limited inventory of available homes for sale, U.S. home prices have climbed 4.6% from March 2023 to March 2024, per Zillow’s Home Value Index. Bizarrely, home prices also jumped 1.1% just from February to March this year.

Even despite falling demand and historically high mortgage rates, home prices simply aren’t responding. As such, the likelihood of a housing market crash isn’t quite as palpable as some may hope.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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