Mortgage applications plunge to lowest level in 2 years. Is the market cooling?

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Lower demand could lead to a more accessible market for buyers.

Key points

  • Last week, the volume of mortgage applications hit its lowest level since December 2019.
  • Higher mortgage rates are fueling this trend, as are limited inventories.

On several occasions in 2020 and 2021, mortgage lenders have been inundated with home loan applications. But those days are clearly behind us.

Last week, mortgage applications fell 13.1% from the previous week, reaching their lowest level since December 2019, according to the Mortgage Bankers Association. Refinance applications fell 15% from the previous week and were 56% lower than they were a year ago.

Why the decline in mortgage applications?

During the second half of 2020 and 2021, mortgage rates remained at or near record lows. But rates were significantly higher to kick off 2022; As of this writing, the average 30-year loan rate is well over 4%. This easily explains the declining volume of refinance applications, and it also explains why fewer buyers are asking to finance a home.

Low inventory can also lead to lower mortgage applications. The housing market has been short of listings for over a year. It stands to reason that if there aren’t many homes to buy, there aren’t as many mortgage applications to fill.

Is the real estate market finally cooling down?

Buyers have faced record house prices in 2021, to the point that many people have inevitably been forced out of the market. But rising mortgage rates could lead to a gradual cooling and a noticeable decline in home values. This is a good thing for buyers, who have been clearly at a disadvantage for over a year.

Yet, for house prices really start falling, we need more inventory to get to market. The reality is that even at a time when mortgage rates are rising, the demand for homes still exists. And whenever you have a situation where the supply of a certain product cannot meet the demand, its price has the potential to rise and remain inflated.

Many sellers have delayed listing their homes due to both pandemic uncertainty and economic uncertainty. But at this point, the omicron push appears to have subsided and the economy appears to be relatively stable despite record high levels of inflation (this may sound counterintuitive, but inflation may actually be a sign of healthy economy). We could see an increase in listings later this year, especially as the weather warms up and sellers gear up for the typical spring boom.

Will 2022 be a good year to buy a house?

Although mortgage rates may continue to rise throughout the year, if home prices drop enough, it could lead to affordable options for buyers. Ultimately, housing inventory will play a huge role in achieving this. Those interested in buying a home in the short term should keep an eye on the market and hope that it opens up considerably after a difficult 2021.

Potential buyers should also do what they can to reap the most savings possible on a mortgage. For most, that means arriving with strong credit and paying off as much debt as possible before submitting those home loan applications.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.