Mortgage rates climb above 7% as loan applications fall in sign of struggling housing market

Mortgage rates once again crept over 7% as mortgage loan application volume fell, according to the latest report from the Mortgage Bankers Association.

The MBA said that last week mortgage rates rose from 6.93% to 7.03%. Additionally, the Market Composite Index, a measure of mortgage loan application volume, fell 2.6% on a seasonally adjusted basis from the previous week, another sign that the housing market is struggling.

“Mortgage rates moved higher last week, crossing the 7% mark, even as the latest inflation data has kept market expectations alive for a rate cut from the Fed later this year,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Purchase applications decreased the final full week of June, even as both new and existing inventories have increased over the past few months.”

The latest data is yet another reminder of the struggles that the housing market has been facing.

The higher mortgage rates have eaten into housing affordability and have also depressed home purchases. The higher mortgage rates are a direct result of the Federal Reserve raising interest rates in response to too-high inflation.

New home sales fell 11.3% from April to a seasonally adjusted annual rate of 619,000, according to a recent report from the Census Bureau. The number of new home sales is 16.5% lower than it was in May of last year.

The median sales price for a new home was $417,400 in May.

During the pandemic, a flood of homebuyers was able to lock in ultra-low sub-3% mortgages given that the Fed had loosened its monetary policy to a historic degree.

There has been a unique dynamic at play in the housing market because of the higher mortgage rates. Many people are holding on to their existing homes and waiting to sell until mortgage rates are lower, creating a shortage of existing homes for sale.

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Existing home sales in May slowed 0.7% to a seasonally adjusted annual rate of 4.11 million, the National Association of Realtors reported recently. The pace of existing home sales is down nearly 3% from the year before.

Additionally, the median price for an existing home lurched to $419,300, which marks the highest median price ever recorded and the eleventh month in a row of year-over-year price gains.