During the week ending 14 October, the number of applications for home mortgages fell 38 percent from the same week a year earlier to their lowest since 1997, the Mortgage Bankers Association said.

Applications to refinance existing mortgages were off 86 percent, year on year.

Also that week, the average interest rate on a 30-year, fixed-rate mortgage rose to 6.94 percent from 6.81 percent the week before.

Early last week, the rate kept climbing. It reached 7.15 percent on 18 October, The Wall Street Journal reported.

Higher rates are spreading gloom across the homebuilding industry.

Builders’ outlook for their industry sank to a rating of 38 out of 100, down eight points from September and half of the sunny 76 builders ranked their optimism six months ago, according to the National Association of Home Builders industry sentiment index.

The index has declined for 10 consecutive months to the lowest since April 2012, excluding the spring of 2020 with the COVID invasion.

The number of prospective buyers also has crashed to its lowest level since 2012, builders reported. The number of homes for sale last month also moved down to 1.25 million, 0.8 percent less than a year ago and representing a 3.2-month supply, the National Association of Realtors (NAR) reported.

Meanwhile, sales of existing homes dipped 1.5 percent in September from August, and 23.8 percent year on year, their eighth consecutive month of decline and sank to their lowest level since September 2012, aside from a brief slump as the COVID War began.

Sales of homes priced at no more than $250,000 dropped by 28.4 percent, year over year. In comparison, sales of houses priced from $750,000 to $1 million fell by only 9.5 percent. 

However, the median sale price of an existing home was $384,800 last month, 8.4 percent higher than a year earlier, marking 127 consecutive months of price increases.

TREND FORECAST: Given the U.S. Federal Reserve’s inability to control inflation by raising interest rates so far, as we note, the Fed will hold back aggressive interest rate hikes. 

Should rates increase, home prices will continue to fall and the housing market will seize up, a process already under way and that we have tracked in articles such as “Mortgage Rates Rise to 20-Year High as Home Prices Fall at Record Pace” (18 Oct 2022), “Home Prices, Sales Fall as Interest Rates Rise” (27 Sep 2022), and “U.S. Housing Market Bust?” (23 Aug 2022).

As S&P CoreLogic Case-Shiller Home Price Index reported today, housing prices for August spiked another 13 percent higher compared with August 2021. While still a sharp move up, it is down from September’s 15.6 percent annual gain. According to their index, this 2.6 percent difference in monthly comparisons is the largest fall in the history of the index, which was launched in 1987.

Thus, inflation, higher interest rates, and a looming recession will shut even more modest- and middle-income buyers out of home ownership, as shown by September’s sales figures cited above.

People who overpaid during the home-buying frenzy of the last two years will find themselves owing more than their homes are worth. 

Those who would like to sell will be either unable because they borrowed against their equity and now owe too much to sell profitably; or they will be reluctant to lose the equity they had on paper as the market scaled its heights, so they will stay put longer. 

Meanwhile, high-earning and cash-rich buyers will continue to have their pick of homes for sale.

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