| According to the Mortgage Bankers Association (MBA), the demand for mortgages declined in the week ending May 12, 2023, as interest rates climbed toward 7%. The Market Composite Index, which measures the mortgage loan application volume, dropped by 5.7% on a seasonally adjusted basis from the previous week. Unadjusted applications declined 6% WoW. In March, mortgage applications declined to reach a 28-year low. The drop in loan applications coincides with homebuyers feeling pessimistic about the current market conditions. In the recent annual Economy and Personal Finance poll by Gallup, U.S. adults who felt this was the right time to buy a home dropped to 21%. It dropped nine percentage points from the previous year. Confidence in buying a house has dropped to record-low levels since 1978.
Americans expecting local home prices to increase in the next year were 71% and 70% in 2021 and 2022, respectively. However, a mere 56% believe home prices would increase under the current market conditions. 25% believe home prices will remain the same, and 19% said it will decrease. This sentiment was seen majorly in the East and South, where 62% and 61% and residents believe prices would increase. On the contrary, only 45% and 55% of residents from the Midwest and West expect prices to go north. These two regions saw the largest YoY decline of 21%. A similar divide is also seen between residents from the rural (45%), suburban (57%), and city (64%) areas. According to MBA's vice president and deputy chief economist, Joel Kan, "Purchase applications decreased 5% to its slowest pace in a month, as buyers remain vary of the interest rate volatility, but also as for-sale inventory in many parts of the country remains scarce." He added that refinance applications accounted for 27% of all applications, which dropped almost 8%. Data released by the Federal Reserve Bank of New York indicated a steep decline in mortgage origination volume in the first quarter of this year. Originations have decreased consecutively for the past seven quarters. Mortgage originations fell to $324B, the lowest in nine years. Originations in Q1 of 2023 were down 34.9% from $498B in Q4 of 2022 and 62.3% from $859B in Q1 of 2022. According to the report, during the pandemic, from Q2 of 2020 to Q4 of 2021, 14 million mortgages were refinanced. Around one-third of all outstanding mortgage balances were refinanced during this period, and 17% of outstanding mortgages were refreshed through home sales. The New York Fed's director of household and public policy research, Andrew Haughwout, said the mortgage refinancing boom is over, and its impact would be seen in the coming decades. He added that the significant equity drawdowns enabled mortgage borrowers to reduce their annual payments by tens of billions of dollars and provide additional funding for spending or paydowns in other debt categories. |
