Declining Mortgage Demand: A Red Flag for the Spring Housing Market
As we head into the spring housing season, there's an unsettling trend that could spell trouble for both homebuyers and sellers. Recent reports indicate a further decline in mortgage demand, signaling that the spring market may not see the boost that many were hoping for. This week, mortgage applications for home purchases dropped by 4% compared to the previous week, according to the latest data from the Mortgage Bankers Association (MBA). To make matters worse, demand was essentially flat compared to the same time last year.
This slowdown in mortgage applications can be attributed to several factors. Despite more homes hitting the market, homebuyers aren't rushing to take advantage of new listings. Mortgage rates have stayed relatively stable over the past few weeks, but they still remain high, hovering around 6.97% for a 30-year fixed mortgage. While this is slightly down from 7.02% the previous week, it's still considerably higher than the historically low rates we saw just a few years ago. Home prices continue to climb, which adds more financial strain to potential buyers. Even with rates dipping a bit, there’s no real incentive for buyers to jump into the market.
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Joel Kan, the vice president and deputy chief economist at the MBA, highlighted that the average loan size for a purchase loan has continued to rise, with weaker government-backed loans contributing to the increase. The average loan size reached $447,300, the highest since October 2024. At the same time, we’re seeing a slight uptick in refinancing applications. A small drop in mortgage rates has spurred refinancing demand, rising 12% compared to the previous week. However, much of this increase is due to the fact that many borrowers still have much lower interest rates locked in from previous years, making today’s rates less appealing.
Looking at the broader picture, it’s clear that the housing market is struggling. Mortgage applications for home purchases are now down by a staggering 39% from where they were in February 2019, before the pandemic’s disruptions. Home sales are at their lowest levels in nearly three decades, and home prices keep setting new records. Sellers are feeling the pressure, with 15.6% offering price cuts in January compared to 14.7% last year. However, despite these cuts, many sellers are still able to maintain strong asking prices due to competition in the market.
Even though the supply of homes for sale has increased by 25% compared to a year ago, it’s clear that many homes are sitting on the market longer. In January, the average time to sell a home was 54 days, the longest it’s been since March 2020. Unfortunately, the overall supply of homes for sale is still 25% below where it was in January 2019, adding to the pressure faced by buyers who are trying to find the right property.
As the spring housing market approaches, it's clear that many potential homebuyers are holding off due to high mortgage rates, rising home prices, and limited inventory. While some buyers may still find opportunities, this trend signals that the housing market could face further challenges in the months ahead. If you're thinking about buying or selling, it’s essential to stay informed and be prepared for the potential hurdles that lie ahead.
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