A measure of applications to finance home purchases slid to the lowest level since 1995 as mortgage rates approached 8 per cent, underscoring how mounting affordability challenges are crimping demand.
The Mortgage Bankers Association’s (MBA) index of home-purchase applications decreased 2.2 per cent in the week ended Oct 20 to 127, the lowest level since 1995. The contract rate on a 30-year fixed mortgage climbed for a seventh-straight week to 7.9 per cent, data out on Wednesday (Oct 25) showed.
Taking mortgage-related fees and compound interest into account, the effective rate surpassed 8 per cent for the first time in 23 years. The rate on a five-year adjustable mortgage climbed almost half a percentage point, the most since early June, to almost 7 per cent.
Ryan Marshall, chief executive officer at PulteGroup, said on Tuesday on the homebuilder’s earnings call that “demand has been a little choppier” in early October. “I’m sure for some buyers, higher rates have pushed affordability just that much further away, while others may be worried about their jobs.”
Mortgage rates tend to move in tandem with Treasury yields. With the 10-year yield rising above 5 per cent for the first time in 16 years earlier this week, home borrowing costs are at risk of climbing further in the weeks ahead.
Since the first week of April, the contract rate on a 30-year fixed mortgage has soared more than 1.5 percentage points.
