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A Housing Hiccup: Why Mortgage Applications Are at a Record Low

If you’ve been eyeing the housing market lately, you’re likely aware of its roller-coaster behavior. A stunning revelation from recent data indicates that Americans are hesitating to dive into the housing market more than they have in nearly three decades. According to the Mortgage Bankers Association’s latest report, mortgage applications plummeted for a sixth consecutive week, bottoming out at levels unseen since 1995.

But what’s causing this drastic dip? Let’s dive in and break it down.

Firstly, the numbers tell a story. In the week leading up to August 18, there was a 4.2% dip in total mortgage applications. Meanwhile, the average 30-year fixed mortgage rate ratcheted up to 7.31%—a rate we haven’t seen since the dawn of the 21st century.

It’s not just fresh mortgage applications that are taking a hit. Refinancing is experiencing a downturn too. MBA’s Refinance Index reported a 6% drop from the previous week and is down by 35% compared to the same period last year.

Joel Kan, an economist at MBA, painted a clearer picture: rising rates are eroding purchasing power, making prospective homebuyers think twice. But there’s more to the puzzle. A scarce housing supply is inflating prices in several markets, setting up potential buyers with an even more challenging environment.

Drawing from over three decades of data, the MBA survey gives a comprehensive overview of US retail residential mortgage trends, covering a whopping 75% of all applications. And right now, it paints a bleak picture of housing affordability.

To put it in perspective, today’s market is surpassing the unaffordability seen just before the 2008 financial crisis. And that’s saying something. The Home Ownership Affordability Monitor by the Atlanta Fed reported a dip in June, indicating declining affordability.

Meanwhile, data from the National Association of Realtors added another layer to the narrative. Existing home sales in July spiraled down by 2.2%, hitting their lowest mark since 2023 began. A year-over-year analysis shows a jaw-dropping 16.6% plunge, made even more daunting when combined with a 14.6% yearly drop in housing inventory.

With these figures in hand, Goldman Sachs strategists recalibrated their predictions. Originally, they foresaw a 2.2% drop in home prices for 2023. Now, they’re singing a different tune, expecting a 1.8% uptick instead. Their reason? A record-slow pace of new listings, leading to increased demand even as application volume remains tepid.

For entrepreneurs and investors, this data isn’t just a passing headline. It’s crucial intel that underscores the need to strategize, adapt, and innovate in a rapidly changing landscape. In the complex dance of supply and demand, those who keep a vigilant eye on market movements will be best positioned for success.