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Mortgage Demand Continues To Plunge As Economist Warns Of Housing Market “Meltdown”

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Mortgage demand has fallen to its lowest level in more than two decades on the back of plunging loan applications. According to a recent survey, last week marked the third consecutive week in which mortgage applications declined, falling 6.3% to the lowest level since 2000.

Survey Reveals Plunging Mortgage Demand

The Mortgage Bankers Association released its weekly survey on mortgage applications on Wednesday. It found that the Market Composite Index, which measures loan application volumes, fell 6.3% last week after seasonal adjustments. However, without a seasonal adjustment, the index was up 17%.

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The MBA's refinance index also reached a 22-year low last week as most mortgage rates were more than two percentage points higher than they were a year ago. The organization added that purchase activity for both government and conventional loans was down amid the weakening economic outlook, skyrocketing inflation and "persistent affordability challenges."

Applications for a mortgage to buy a home declined 7% last week and were 19% lower than the same week last year. Interest rates are nearly twice what they were in January, leaving prospective homebuyers with significantly less purchasing power.

Although interest rates on mortgages haven't changed much this week, they could change significantly next week when the Federal Reserve is expected to raise rates by another 75 basis points.

Homebuilding Also Stalling As Economist Warns Of Housing Market "Meltdown"

The decline in mortgage demand aligns with reduced homebuilding activity resulting from reduced buyer traffic, continuing shortages of building materials, and increased costs. Homebuilder confidence plummeted to its lowest level in two years this month amid high inflation and supply chain issues.

According to Monday's release from the NAHB/ Wells Fargo Housing Market Index, this month marks the seventh straight monthly drop in builder confidence for new homes. It fell 12 points to 55, its second-largest single-month drop ever. Builder expectations for current and future sales are also down dramatically, dragging confidence down to its lowest level since May 2020.

In comments emailed to Forbes, Pantheon Macro Chief Economist Ian Shepherdson said confidence will continue to decline. He recalled Federal Reserve Chair Jerome Powell's comment last month about the housing market's "complicated situation."

Shepherdson added that potential homebuyers "need a bit of a reset" as mortgage rates adjust to the new normal of higher rates. He clarified that the current situation in the housing market is "a meltdown," adding that home prices should also begin to decline too. Shepherdson also warned that soon "anyone who has bought a home in recent months will be sitting on a loss."

Mortgage demand surged during the pandemic due to tumbling interest rates and the work-from-home trend. It caused many Americans to refocus on their living quarters and make changes to accommodate their new lifestyle of working from home.

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