U.S. Home Purchase Applications Hit Lowest Since 1995

U.S. mortgage applications for home purchases stumbled last week to an almost three-decade low, indicating residential real estate is reeling from the recent spike in borrowing costs.

The Mortgage Bankers Association index of home-purchase applications fell 5% to 142, the lowest level since 1995. The Wednesday data also showed that the contract rate on a 30-year fixed mortgage increased 15 basis points to 7.31% in the week ended Aug. 18 — the highest since late 2000. 

Including a decline in refinancing activity, the overall measure of mortgage demand dropped 4.2%.

Borrowing costs have continued to rise so far this week, and Mortgage News Daily, which updates more frequently, put the 30-year fixed rate at almost 7.5% on Tuesday.

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Mortgage rates are benchmarked to U.S. Treasuries, and yields on those securities have been climbing as traders increasingly see a resilient economy keeping interest rates higher for longer.

Federal Reserve Chair Jerome Powell is set to speak at the central bank’s annual Jackson Hole symposium later this week, and minutes from policymakers’ gathering last month showed most officials still saw significant upside risks to inflation, which could require further rate hikes.

That’ll keep mortgage rates elevated and, along with still-high home prices, put further strain on a residential housing market that had been showing promise earlier in recent months. 

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The latest housing data further illustrate the trend — homeowners are reluctant to move and take on a higher mortgage rate, so prospective buyers are seeking out new construction instead.

A separate report Wednesday showed new-home sales rose last month to the highest level in a over a year after downward revisions to prior months.

The MBA’s overall gauge of mortgage applications, which also includes refinancing, fell to 184.8, near the lowest level since 1996.

The survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.