Hot Housing Market Shows Signs of Burnout

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Demand for mortgages shrank to pre-pandemic levels last week, a sign that the U.S. housing market has gotten so hot, it’s starting to seize up.

Sky-high prices, a massive shortage of homes for sale, and an uptick in interest rates have dampened interest in home buying and refinancing the past few months, but last week the volume of mortgage applications fell to its lowest level since February 2020, according to the Mortgage Bankers Association’s Market Composite Index, a seasonally adjusted measure. The index, which tracks applications for both purchases and refinancing, has fallen 32% from its recent peak in January, and is now even lower than in April, when it also touched pre-COVID-19 levels.

With housing inventory near all-time lows and new home construction hindered by a shortage of materials, there’s not much to buy, and the few homes for sale cost dearly. Mortgage rates, while still relatively affordable, are up from the record lows they hit over the winter and are not spurring homeowners to refinance their loans like they did earlier in the year, according to Joel Kan, associate vice president of economic and industry forecasting for the MBA. Rates for 30-year fixed mortgages averaged 3.17% last week, according to MBA’s data, up from their record low of 2.85% reached in Decmber.