Mortgage applications drop for second straight week as homebuyers worried about recession

Mortgage applications have fallen for the second consecutive week as homebuyers worry about a possible recession.

For the week ending July 1, the Mortgage Bankers Association reported a 5.4% decrease in mortgage applications from the previous week. The results include a holiday adjustment to account for early closings on Friday before Independence Day.

Refinance applications fell 8% from the previous week and were 78% lower than the same week a year ago. The refinance share of mortgage activity decreased to 29.6% of total applications from 30.3% the previous week. Home purchase applications fell by 4% for the week and are 17% less than the same week a year ago.

The Federal Reserve's efforts to tame scorching inflation have led to higher mortgage rates, but they have recently slowed, falling 24 basis points over the past two weeks.

Joel Kan, an MBA Associate Vice President of Economic and Industry Forecasting, says that the slight dip in rates is not enough to change the minds of prospective homebuyers.

Applications for home purchases and refinances remain depressed, because of the fact that rates are still higher than they were a year ago. The affordability challenges and low inventory keep the purchase activity hamstrung, and homeowners still have little incentive to apply for a refinance. The average contract interest rate for 30 year fixed-rate mortgages with a conforming loan balance of $647,200 or less decreased to 5.74% from 5.84%. The average home purchase loan size for the week ending July 1 was $405,200, down from $413,500 for the week ending June 24 but 21% higher than the same week a year ago.

The latest data comes after Realtor.com reported an 18.7% increase in active listings in June. The total inventory of active listings for the month was down 34.1% compared to 2020 and 53.2% compared to 2019.

The June national median listing price for active listings was $450,000, up 16.9% compared to last year and up 31.4% compared to June 2020, according to Realtor.com. In large metro areas, median listing prices grew by an average of 13.3% compared to last year.

The average home spent 32 days on the market in June, down four days from the same time last year and down 37 days from June 2020.