Mortgage applications plunge 14% in a single week

Buyers said no thanks, banks, as mortgage rates surged and Hurricane Ian struck

Mortgage applications plunge 14%
(Illustration by Ilya Hourie for The Real Deal with Getty)

It could be a frigid winter for brokerages, lenders and the rest of the residential real estate industry if the Federal Reserve keeps raising interest rates.

Mortgage applications fell 14.2 percent from a week prior, according to seasonally adjusted data from the Mortgage Bankers Association’s survey for the week ending Sept. 30. That’s the slowest pace for mortgage applications since 1997.

The No. 1 song that year was “Candle in the Wind,” which could describe the frenzied but fickle market of just a few months ago.

Higher interest rates usually translate into higher mortgage rates. Those have nearly tripled since reaching historically low levels earlier this year, before the Fed’s initial rate hike in March.

But the Fed isn’t the only factor at play, according to Joel Kan, the trade group’s head of economic and industry forecasting.

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“There was also an impact from Hurricane Ian’s arrival in Florida last week, which prompted widespread closings and evacuations,” the MBA executive said. “Applications in Florida fell 31 percent, compared to 14 percent overall, on a seasonally adjusted basis.”

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(Illustration by The Real Deal with Getty Images)
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Mortgage rates are returning to historical norms, meaning they aren’t high by 21st century standards. However, their rise since March has been breathtakingly steep, and they’re at their highest levels since June 2008, so buyers are balking.

Sellers, meanwhile, have not adjusted their prices down much if at all, in part because so few homes are for sale. But drops could be coming as the reality of buyers’ budgets catches up to sellers.

Refinancing has also been hit by Fed policy: The MBA’s refinance index fell by 18 percent week-over-week and was down 86 percent compared to the same week last year. Most mortgage holders are paying far lower rates than are available now, so refinancing makes little sense for them.

Analysts say the lack of inventory means prices won’t fall very far. Though inventory varies by market, there is a national shortage of homes. New construction has been on the decline since the 1980s and a recent estimate by found the U.S. is short by more than 5 million homes.