- Existing home sales dropped 5.4% from May to June, marking five months of declines.
- Mortgage applications declined for the third week in a row, reaching the lowest level since 2000.
- Supply of homes has increased, but many buyers can afford less these days.
Mortgage demand drops to 22-year low as consumers struggle with affordability.
Will home prices start to become more affordable? That's the question on a lot of potential buyers' minds, and recent National Association of Realtors (NAR) data may shed some light on the topic. NAR reports that while the median price of existing homes has risen to $416,000, the percent increase has declined from the previous year.
NAR data also indicates the number of homes being sold has decreased too, indicating a drop in demand. In fact, as of June, existing home sales have dropped for the last five months.
Mortgage demand hits 22-year low
According to the Mortgage Bankers Association (MBA), mortgage applications dropped by 6.3% for the week ending July 15. "Mortgage applications declined for the third week in a row, reaching the lowest level since 2000," said Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting.
"Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand," Kan added. "The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs."
What's more, inflation has increased by 9.1% over the last 12 months, according to the Consumer Price Index, which was higher than expected. Since the beginning of the year, 30-year mortgage rates have risen from 3.22% to 5.3%, per data from Freddie Mac. That's close to a 65% increase. The combination of higher inflation and higher mortgage rates have increased costs significantly, slowing down demand.
Increase in supply
In addition to falling demand, the supply of homes has increased. Total housing inventory reached 1.26 million units at the end of June, according to a NAR report. This is a 9.6% increase from May and a 2.4% rise from the previous year. The number of unsold homes is at a three-month supply, up from two and half months in June 2021.
What potential buyers can do
With more homes on the market and decreasing demand, home prices are beginning to stabilize. But with the high cost of homes and mortgage rates surging this year, many people are able to afford less. This has understandably discouraged prospective homebuyers.
If you're looking to buy a home, you may want to wait a while longer and save up larger down payment. Or you can play around with our mortgage calculator to see what you can afford in different situations. And if you're new to the world of home buying, take a look at our guide for first-time home buyers to get some tips on the process.
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