While heat waves and wildfires have dominated recent headlines, there’s a major cooling trend in the US housing market. According to the Mortgage Bankers Association's weekly survey, mortgage applications dropped a seasonally adjusted 6.3% last week, per CNBC. That puts mortgage demand at its lowest point since 2000. There are several reasons for the drop, and they're not all that surprising. "Purchase activity declined for both conventional and government loans as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand," said MBA economist Joel Kan. Average interest on a 30-year fixed-rate mortgage also increased slightly, from 5.74% to 5.82%, but experts foresee further rate hikes, as upcoming policy announcements from the Fed as well as the European Central Bank could cause additional stir in US bond markets.
Demand for refinances also hit 22-year lows thanks to interest rates that are two full percentage points higher than a year ago, per HousingWire. Additionally, new homebuilding activity and permits also fell to nine-month lows, which the MBA's Kan attributed to "reduced buyer traffic and ongoing building material shortages and higher costs." Meanwhile, average home prices are still at historic highs in many markets across the US, making expensive mortgages that much more unappetizing. Home prices in Southern California inched downward between May and June, the first such drop for June in 12 years, per the Orange County Register, and "for sale" signs are multiplying as the number of houses sold continues to fall, per the Washington Post. Overall, however, one Zillow economist says would-be buyers are still "being greeted by absolute carnage as far as affordability right now." (Read more mortgage rates stories.)