Mortgage Applications Fall to Lowest Level Since May

A row of detached homes in an idyllic community in Fredericksburg, Virginia

Grace Cary / Getty Images

In a sign that the hot housing market might be headed for a cooldown, a measure of mortgage applications fell for the sixth time in seven weeks, reaching its lowest point since May. 

The Mortgage Bankers Association’s (MBA) mortgage application purchase index, a seasonally adjusted measure of applications for single-family homes that is a leading indicator of sales, fell 2.6% last week, according to figures released Wednesday. It’s now at its lowest level since the third week of May, when sales had yet to recover from the lockdown restrictions triggered by COVID-19. 

The slipping demand comes despite interest rates for a 30-year fixed-rate mortgage falling to an all-time MBA-survey low of 2.98%, the report showed. Although the application index is still well above its pre-pandemic level, it is starting to lose strength as homebuyers are priced out of an increasingly expensive market fueled by high demand and low supply. 

“Homebuyer demand is still strong overall,” wrote Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. “However, inadequate housing supply is putting upward pressure on home prices and is impacting affordability—especially for first-time buyers and lower-income buyers. The trend in larger average loan application sizes and growth in loan amounts points to the continued rise in home prices, as well as the strength in the upper end of the market.” 

Indeed, home prices have spiked dramatically during the pandemic as well-heeled buyers scoop up pricier homes. The median home price has risen from $270,000 before COVID-19 to $339,400 after, according to a report released Wednesday by the National Association of Realtors (NAR). Nearly a quarter of homes purchased after March cost $500,000 or more, the NAR said.

The supply of houses for sale fell to record lows this fall, contributing to a rise in prices. In its most recent monthly housing sales report, the NAR said the supply of homes would be exhausted in 2.7 months if sales continued at the current pace. According to the association, six-months of inventory indicates moderate price increases. 

The housing market has been a bright spot in the pandemic economy, but many analysts have warned that the boom may be unsustainable as higher prices drive homes out of reach for new buyers, and a wave of foreclosures looms for homeowners whose finances have been impacted by the pandemic.