Home Loan Demand Takes a Hit Amid Rising Mortgage Rates and Limited Inventory

In recent weeks, the demand for home loans has dropped to its lowest point since March. The Mortgage Bankers Association reports that this decline is due to a first increase in mortgage rates in four weeks, with applications for mortgage loans decreasing by 5.7% during the week of May 24. The increase in the 30-year, fixed-rate mortgage to 7.05% likely played a role in this decrease.

According to MBA Vice President Joel Kan, borrowers are sensitive to even small increases in rates, which has impacted both the refinance market and purchase applications, which have fallen below levels from the previous year. Home purchases saw a 1% decline and mortgage loan refinancing dropped by 14% compared to the prior week.

Kan also highlighted that low inventory in the housing market continues to be a contributing factor to the downturn in demand. With limited levels of existing homes for sale, buyers have difficulty finding listings within their price range that meet their needs. This challenging market environment may further impact demand for home loans and keep purchase applications at lower levels as buyers become more cautious about making large financial decisions when faced with limited options and rising costs.