New home mortgage applications fell to their lowest levels in nearly 30 years, according to a recent report. The decline in mortgage activity reflects both a cooling in the housing market and the wider implications of increasing interest rates.
Data from the Mortgage Bankers Association found that the number of mortgage applications nationwide fell to their lowest point since 1996.
A representative from the banking group added that the “purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market.”
Overall, the number of home refinance loans has fallen by more than 20% over this time last year. The decline in new mortgages comes during increased uncertainty about the future of the American economy.
The average 30-year fixed-rate mortgage rate has reached 7.74%, which rapidly increased since even earlier last year. This contrasts sharply with mortgage rates that were often near or below 3% during the pandemic.
In addition, the number of new home sales also declined from July to August. The 675,000 new home purchases during that period represented an almost 9% drop in sales. Existing home sales fell, as well, down nearly a percent.
Perhaps more concerning for the wider economy, the number of new housing construction starts fell more than 11% during the same period. Since August of last year, the same number of new home constructions fell almost 15% down to lows not seen since the start of the pandemic.
Interest rates on government bonds and general borrowing reached their highest point in two decades in recent months.
High-interest rates also have a significant effect on the federal budget. The higher interest rate makes it more difficult and expensive to finance the national debt.
In other news, this is bad. Real bad. It’s why interest payments on our national debt will soon surpass our (massive) defense budget. And why mortgage rates won’t be going down anytime soon. And why commercial real estate and bond markets are getting hairy. And worse. (1/2) https://t.co/PZIEj5Jm4Y
— Peter Meijer (@RepMeijer) October 4, 2023
The increase in rates since the end of the coronavirus pandemic could potentially add hundreds of billions of dollars in new expenses each year, without Congress passing an additional spending bill.
The economic strain will put pressure on the Federal Reserve over whether or not to raise interest rates. The decision will be more complex since inflation has picked up again in recent months.