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Mortgage Applications Rise In Potential Housing Market Respite—Could Home Buying Become More Affordable Soon?


Mortgage applications rose for the first time in a month last week after fears of impending recession helped push down recently elevated mortgage rates—prompting some experts to say the much-needed respite in mortgage rates could ultimately usher in a turnaround for the volatile housing market.

Key Facts

Mortgage applications climbed 1.2% from one week earlier, according to the latest data from the Mortgage Bankers Association, marking the first weekly increase since June 24, as the 30-year fixed mortgage rate posted its largest weekly decline since 2020, falling 31 basis points to 5.43%.

In a statement, MBA’s Joel Kan said the decline in rates led to increases in both refinancing and purchase applications and attributed the sudden decrease to expectations calling for a weaker market environment in the coming months after the Federal Reserve continued its aggressive economic tightening campaign on Wednesday.

The respite comes after mortgage applications abruptly plunged to the lowest level in more than 22 years after the Fed started raising interest rates, pushing up mortgage rates to the highest level since the Great Recession and thereby driving up monthly payments hundreds of dollars.

Compared to a year ago, activity remains depressed, Kan said on Wednesday, but he posits that “lower mortgage rates, combined with signs of more inventory coming to market, could lead to a rebound in purchase activity.”

Others are also optimistic on what that could mean for the housing market: In a weekend note, Bank of America analysts said mortgage rates could drop from 5.3% to 4.5% by the end of the year, setting the stage for improved affordability and allowing the spike in housing prices to cool to a “healthy” 5% next year from today’s staggering 15%.

Key Background

The housing market has been on a volatile ride since the start of the pandemic. Booming demand, boosted by historically high savings and low interest rates, drove record growth in home sales and prices, but this year has brought about a stark turnaround. Existing home sales fell 14% in June, marking the eleventh consecutive month of year-over-year declines. Some experts have started to worry about the broader economic implications. In a note to clients last month, Bank of America economist Michael Gapen downgraded his economic forecast as a result of the steeper-than-expected housing market decline and warned of a mild recession later this year.

Surprising Fact

In a note to clients last month, Goldman Sachs chief credit strategist Lotfi Karoui noted housing affordability has deteriorated to its worst level since at least 1996 as mortgage rates jumped earlier this year—all while prices kept climbing, adding that affordability will likely remain at “historically challenging levels” through the end of the year.

What We Don’t Know

In emailed comments, Marty Green, a principal at mortgage law firm Polunsky Beitel Green, said it remains unclear whether the recent housing market slowdown is a result of “most consumers simply pausing a purchase decision while they see where interest rates and home prices settle or whether they are having to delay a purchase decision indefinitely because of affordability concerns.” How much the market rebounds as mortgage rates begin to cool should help answer that question.

Further Reading

Pending Home Sales Plunge In June As Demand Is Weighed Down By Surging Mortgage Rates (Forbes)

American Household Debt Hits Record $16.2 Trillion As Mortgages, Credit Card Spending Swell—Delinquencies Creep Up (Forbes)

Housing Market Collapse ‘Deepening, Fast’: New Home Sales Crater Again As Experts Worry Downturn Could Spark Recession (Forbes)