Americans are struggling to find homes for sale, causing mortgage demand to plummet

A key measure of home-purchase applications fell last week for the first time in a month as potential buyers struggled to find listings on the market amid a lack of supply. 

The Mortgage Bankers Association’s index of mortgage applications tumbled 4.1% last week compared with the previous week, according to new data published on Wednesday. Demand remains 35% lower than the same time one year ago. 

“Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season,” said Mike Fratantoni, MBA’s chief economist. “After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates.”

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Open house at a home for sale in Evesham Twp., N.J., Feb. 26, 2023. (Fox News)

Homebuyers are having difficulties finding properties, with new listings down 20% in March compared with last year, according to Realtor.com. Total inventory remains about half of what it was in March 2019, before the COVID-19 pandemic began.

“A smaller number of new options will be a challenge for buyers and the number of existing home sales, which remain low despite a significant pickup in February,” said Danielle Hale, chief economist at Realtor.com.

The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive tightening campaign. 

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Policymakers already lifted the benchmark federal funds rate nine consecutive times and have signaled that a 10th increase is on the table at their May meeting amid signs of underlying inflationary pressures within the economy.

For months, higher mortgage rates have dampened consumer demand and brought down home prices. But as rates have slowly fallen from a peak of 7%, the housing market has shown early signs of stirring back to life.  

Homes in Rocklin, California, US, on Tuesday, Dec. 6, 2022.  ( Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)

Median home prices climbed 0.16% in February from a month earlier, compared with a 3.4% decline in January, mortgage analytics firm Black Knight said in a report Monday. It marked the strongest one-month gain since May of last year. 

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Prices are expected to climb higher as rates continue to drop and supply remains constrained.

“The unfortunate reality is that the scarce supply of inventory that’s the source of so much market gridlock isn’t getting any better,” said Andy Walden, Black Knight’s vice president of enterprise research. “Without a significant shift in interest rates, home prices or household income, this is a self-fulfilling dynamic that is quite likely to continue for some time.”