Fewer people apply for home loans as borrowers are discouraged by high borrowing costs and rising home prices

As evidence mounts that rising mortgage rates and home prices are keeping many would-be homeowners out, U.S. home loan applications are at their lowest level in decades.

According to the Mortgage Bankers Association, the number of mortgage applications received last week dropped to the lowest level in 28 years, according to an index that measures mortgage application volume.

According to the MBA’s home loan application index, home purchase loans decreased 2.1% from the week before to a seasonally adjusted reading of 141.9 last week.

That’s the index’s lowest level since April 1995 and is down about 28% from a year ago.

According to Joel Kan, the MBA’s deputy chief economist, “both purchase and refinance applications fell, with the purchase index hitting a 28-year low, as potential buyers remain on the sidelines due to low housing inventory and elevated mortgage rates.”

As lenders use the yield on the 10-year Treasury as a benchmark to set loan prices, mortgage rates have been rising in recent weeks.

According to mortgage buyer Freddie Mac, the average rate on the standard 30-year home loan was 6.48% at the beginning of this year and as low as 6.12% in February.

Since then, it has stayed at or near 7%, which is consistent with the average seen around the turn of the century.

High interest rates can increase monthly expenses for borrowers by hundreds of dollars, which restricts how much they can afford in a market that is already out of reach for many Americans.

They also deter homeowners from selling who locked in low rates two years ago, a trend that has helped keep the number of previously occupied homes in the United States on the market at close to record low levels.

Sales of previously occupied homes in the United States are down 22.3% through the first seven months of the year compared to the same period in 2022, which is a result of a lack of housing supply.

When compared to two years ago, when it was only 2.87%, the average rate on a 30-year mortgage is still more than twice as high.

The demand for refinancing home loans has plummeted in recent years as more homeowners locked in bargain rates.

The MBA’s refinance loan index dropped last week to a seasonally adjusted rate of 388.1, 4.7% lower than the week before and 30.3% lower than a year ago.