Mortgage applications are increasing in potential respite in the housing market – could buying a home become more affordable soon?

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Mortgage applications rose for the first time in a month last week after fears of an impending recession helped lower recently raised mortgage rates — leading some experts to say the much-needed respite in mortgage rates could eventually reverse the volatile housing market.

Key facts

Mortgage applications were up 1.2% from a week earlier, according to the latest data from the Mortgage Bankers Association, the first weekly increase since June 24, as the 30-year fixed mortgage rate showed its biggest weekly decline since 2020, with a decrease of 31 basis points to 5.43%.

MBA’s Joel Kan said in a statement that the drop in interest rates led to increases in both refinancing and purchase requests, and attributed the sudden drop to expectations that prompted a weaker market environment in the coming months after the Federal Reserve halted its aggressive economic tightening campaign. Wednesday.

The postponement comes after mortgage applications fell abruptly to their lowest level in more than 22 years after the Fed began raising interest rates, pushing mortgage rates to the highest level since the Great Recession and pushing up monthly payments by hundreds of dollars.

Compared to a year ago, activity remains low, Kan said on Wednesday, but he argues that “lower mortgage rates, coupled with signs of more inventory coming to market, could lead to an uptick in buying activity.”

Others are also bullish on what that could mean for the housing market: In a weekend note, Bank of America analysts said mortgage rates could fall from 5.3% to 4.5% by the end of the year, paving the way opens up for improved affordability and the potential for home price increases to cool to a “healthy” 5% next year from the current whopping 15%.

key background

The housing market has been on a volatile ride since the start of the pandemic. Strong growth in demand, fueled by historically high savings and low interest rates, fueled record growth in home sales and prices, but this year saw a strong turnaround. Existing home sales fell 14% in June, marking the 11th consecutive month of year-over-year declines. Some experts are beginning to worry about the wider economic implications. In a note to customers last month, Bank of America economist Michael Gapen lowered his economic forecast amid the stronger-than-expected decline in the housing market, and warned of a mild recession expected later this year.

Surprising fact

In a note to customers last month, Lotfi Karoui, Goldman Sachs’ chief credit strategist, noted that housing affordability has deteriorated to its worst level since at least 1996 as mortgage rates rose earlier this year – and that as prices continued to rise, adding that affordability is likely to remain at “historically challenging levels” through the end of the year.

What we don’t know

In comments emailed, Marty Green, a director of mortgage law firm Polunsky Beitel Green, said it remains unclear whether the recent housing market slowdown is the result of “most consumers simply pausing a purchase decision while seeing where interest rates and home prices are.” settle or whether they should postpone a purchase decision indefinitely due to affordability concerns.How much the market recovers as mortgage rates begin to cool should help answer that question.

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