The mortgage application volume has plummeted to its lowest point in nearly three decades, as monthly mortgage payments reach an all-time high.In the past few weeks, mortgage rates for 30-year loans have soared to over 7 percent, causing mortgage payments to skyrocket to near-record levels, according to the latest data from Redfin.
Simultaneously, the scarcity of available homes has driven up home prices, making it increasingly difficult for many potential buyers to enter the market.As a result, housing demand has plummeted to near-record lows due to affordability pressures.
Average Mortgage Payments Continue to Rise
The typical monthly mortgage payment has reached $2,612 with a 7.18 percent mortgage rate during the four weeks ending Sept. 3, coming just $18 shy of the previous record set in May, as reported by Redfin.Mortgage-purchase applications have experienced a staggering 28 percent year-over-year decline, marking a 28-year low, according to data from the Mortgage Bankers Association (MBA).
Pending home sales have also dropped by 12 percent compared to the previous year.
Meanwhile, the surging home prices have deterred potential homebuyers from entering the housing market.
“Last week’s decline was primarily driven by a 5 percent drop in refinance applications, reaching the lowest level since January 2023,” stated Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Despite the increase in rates, purchase applications increased over the week, fueled by a 2 percent rise in conventional loans. Given the current high rates, there is minimal refinance activity and less incentive for homeowners to sell and purchase a new home at a higher rate,” Mr. Kan added.
The median home price now stands at $378,725, reflecting a 4.5 percent year-over-year increase and the most significant surge in costs since October 2022, according to Redfin.
The rise in home prices can be attributed in part to the limited availability of homes, as many homeowners are hesitant to sell their properties acquired during the period of historically low mortgage rates.
Furthermore, the prevalence of more buyers than sellers in most U.S. housing markets exacerbates the situation.“The U.S. housing market is presenting a challenging environment for homebuyers, with escalating home values and interest rates. The cost of homeownership has reached unprecedented levels. The combination of low inventory and high-interest rates is causing many potential homebuyers in various markets to continue renting instead,” explained Colin O’Leary, Licensed Real Estate Salesperson with Berkshire Hathaway HomeServices Fillmore Real Estate in New York City, in an interview with The Epoch Times.
Household Mortgage Debt Surges in Q2 2023
Current mortgage debt continues to burden numerous homeowners, as mortgage balances surged by $627 billion annually in the second quarter of 2023, according to the Federal Reserve Bank of New York’s latest report.
The total mortgage balances held by American homeowners now amount to $12.01 trillion.
In fact, U.S. credit card debt surpassed $1 trillion in the second quarter, experiencing a quarterly increase of $45 billion. At least 5.08 percent of this debt ended up in delinquency or payments at least 90 days past due, marking an annual increase of 3.35 percent.According to the latest data from the St. Louis Fed, the average interest rate for a personal loan is 11.48 percent, significantly lower than the average credit card interest rate of 20.68 percent.“Credit cards remain the most prevalent form of household debt and continue to become even more widespread,” stated the NY Fed. “Consider that there are now 70 million more credit card accounts open than there were in 2019, before the pandemic.“Compared to other debt categories this quarter, credit card balances saw the most significant deterioration in performance, following a period of exceptionally low delinquency rates during the pandemic.”
Latest Data May Influence Federal Reserve’s Actions on Inflation
“The Federal Reserve has essentially created a cycle of booms and busts. We are perpetually trapped within these cycles,” remarked Phil Nicozisis, a real estate developer and investor, in an interview with The Epoch Times.
“People tend to forget that for 150 years, interest rates were governed by passbook savings. The ability to artificially set interest rates goes against the basic principles of finance, which emphasize the importance of considering the price elasticity of supply and demand,” he added.
Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to curb inflation, resulting in higher mortgage rates.
The Federal Open Market Committee (FOMC) will determine whether to raise rates at its upcoming policy meeting scheduled between Sept. 19 and Sept. 20.
Although the Fed managed to lower inflation rates from 9.1 percent in June 2022, prices have risen to 3.2 percent year-over-year in July, surpassing the central bank’s 2 percent target.
Despite signs of cooling, the August jobs report still showed growth, with the addition of 187,000 jobs, surpassing most predictions.
The U.S. unemployment rate rose to 3.8 percent in August, up from the 3.5 percent recorded in July.
The combination of a sluggish housing market, ongoing job growth, and a slight increase in inflation is likely to influence the Fed’s decision on whether to implement another round of rate hikes.
What are the implications of escalating household debt, specifically credit card debt, on the economy
Inue to be a concern due to their high interest rates,” stated Brian O’Reilly, Director of Finance Education at the National Endowment for Financial Education. “It’s important for consumers to be aware of their credit card balances and make efforts to pay them off in a timely manner to avoid excessive interest charges.”