Mortgage rates are scaring buyers away

High mortgage rates are keeping buyers on the sidelines as falling applications for home loans suggesting that prospective homeowners are unwilling to take on expensive debt to purchase property, Mortgage Bankers Association’s (MBA) revealed on Wednesday.

Mortgage applications fell by 0.6 percent for the week ending March 29, in another period of decline. Meanwhile, refinancing also dropped, with the Refinance Index falling 2 percent during the week.

The 30-year fixed rate mortgage ticked down very slightly by 0.2 percentage point to 6.91 percent, but buyers did not appear moved by that trend downwards.

“Mortgage rates moved lower last week, but that did little to ignite overall mortgage application activity. The 30-year fixed mortgage rate declined slightly to 6.91 percent, while the 15-year fixed rate decreased to its lowest level in two months at 6.35 percent,” Joel Kan, MBA’s deputy chief economist, said in a statement shared with Newsweek.

The lukewarm data in mortgage applications recently comes amid the spring buying season, when the housing market is at its most active. There is evidence that sellers are increasingly getting their homes listed with the number of new properties for sale in the market going up over the last two months.

But rates, while lower than the peak 8 percent level they hit in the fall, are still higher than they were a year ago, according to data from mortgage buyer Freddie Mac. Their weekly average for the 30-year fixed rate averaged at 6.79 percent, as of March 28, up from 2023’s level at 6.32 percent.

This appears to be an obstacle that buyers are still struggling to overcome, according to MBA.

“Elevated mortgage rates continued to weigh down on home buying. Purchase applications were unchanged overall, although [Federal Housing Administration loan] purchases did pick up slightly over the week. Refinance applications decreased to fall 5 percent below last year’s pace,” Kan said.

In addition to elevated rates, home prices also continue to prove prohibitive. Some data shows that house prices were 7 percent higher in February compared to a year ago.

Some buyers are putting down more cash as part of the mortgage loan applications to reduce the monthly outlays they have to pay on those home loans, according to real estate platform Redfin. Buyers on average are spending 5 percent more on their down payments compared to the same time in 2023, said Redfin. Meanwhile, cash transactions are also up, which means those buyers are foregoing the challenge of higher rates altogether.

“Some homebuyers are paying in cash for the same reason others are taking out large down payments: elevated mortgage interest rates,” Redfin said in an analysis last week. “A large down payment helps ease the sting of high rates by reducing monthly interest payments, whereas an all-cash purchase removes the sting altogether because it means a buyer isn’t paying interest at all.”

But economists are worried that this dynamic is making it tougher for first-time home buyers to secure a home.

“High mortgage rates are widening the wealth gap between people of different races, generations and income levels,” Redfin’s economics research lead Chen Zhao said.