Mortgage Demand Hits a 22-Year Low: Should You Put Off Home Buying Plans?

Waiting could pay, for a number of reasons.

Home buying struggles aren't a new thing. Since the latter part of 2020, home prices have risen steadily, and for the past year and change, they've been sky-high.

But last year, buyers got a bit of a reprieve in the form of competitive mortgage rates. That's not been the case this year.

Since the start of 2022, mortgage rates have risen sharply. And while that hasn't driven home prices downward so far, it has resulted in a notable decline in mortgage demand.

Last week, total mortgage volume fell to half of where it was a year ago, according to the Mortgage Bankers Association. And while that includes refinance demand, purchase mortgage demand was 21% below where it was a year prior.

In fact, all told, mortgage demand is at its lowest level in 22 years thanks to soaring home prices and rising rates. And it won't be surprising to see a continuous decline in borrowing volume this year, especially if rates keep rising and home prices hold steady.

Should you wait to buy a home?

You may have your heart set on buying a home in 2022. And you may have even saved up a sizable down payment to make that happen. But given the state of the housing market and the cost of financing a home purchase, waiting to buy could make more sense.

Right now, home buyers get the worst of both worlds: expensive homes and costly borrowing rates. And so if you're currently in a stable, affordable housing situation (say, you recently signed a year-long lease on a reasonably priced rental), then it could pay to put your plans to buy on hold until the market cools off.

This holds true even if you own a home already and are looking to buy another one. Unless you're planning to downsize, what you gain from selling your home at a premium, you'll lose in the form of a higher purchase price on a new home. Plus, you might end up trading a mortgage with a lower interest rate for a home loan with a much higher one.

Will the housing market be easier to navigate next year?

It's hard to say. Last year, buyers were told to sit tight and wait until 2022 for the real estate market to cool off. But that hasn't happened so far, and that's largely because housing inventory is still incredibly low.

We can't say with certainty that more inventory will hit later this year or early next. And if inventory remains sluggish, 2023 could end up being an equally difficult time to buy a home.

Now you may be thinking, "In that case, why not buy now?" But the reality is that things are so tough right now that it's natural to assume they'll get better -- if not in 2023, then perhaps the year after.

All told, there are many benefits to owning a home. But buying one at the wrong time is a decision that could backfire. Unless you're desperate to escape a bad housing situation, you may want to put your homeownership plans on hold a bit longer. That may be a tough pill to swallow, but it's better than making a financial choice you sorely regret.