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Why Mortgage Applications Continue to Decline

By Anita Cooper | August 18, 2022

According to recent data, mortgage applications are at their worst in 22 years. Just a short time ago, it seemed everyone was in a rush to either buy a home or refinance, but now Americans have put the brakes on the housing market. 

There are several reasons for the dip in mortgage applications, including mortgage rates, inflation, housing supply, and what many fear is an unstable economy. It's anyone's guess when the market will bounce back and recover.

Here's more on why mortgage applications continue to decline.

Mortgage Rates

A rise in mortgage rates is one of the biggest reasons mortgage applications continue to drop. Many people are skittish about borrowing money to buy a house as the rates continue to rise. 

Mortgage rates jumped more than 2 percent since the end of 2021; in August 2022, they are at a little more than five percent. Since 1976, mortgage rates have been in decline. There are few times in history when mortgage rates rose this fast, affecting the housing market. 

Just a few years ago, when mortgage rates were at record lows, it seemed just about everyone was in the market to apply for a mortgage and to buy a home. The housing market was on fire.

Fast forward to today, and things aren't the same. Many potential homebuyers are deciding to wait it out until mortgage rates dip. 

With rates at more than 5 percent, many people looking to buy a house might think it's simply too expensive to apply for a mortgage. The higher your mortgage rate, the more you spend on a home. Throughout a 15 or 30-year mortgage, you will pay a lot more for your home.  

For example, a one percent difference in your mortgage rate could make all the difference. If you carry a mortgage of $150,000, you will pay about $100 more each month. Over the life of the mortgage, that adds up to about $30,000! 

Lower interest rates also mean buying more 'home' for your money. Many buyers took advantage of the low rates to get a bigger house (more oversized kitchen, more land, nicer neighborhood, etc.). 


The rise in mortgage rates is tied to inflation. America is seeing inflation rates at levels it hasn't seen since the early 1980s. As the Federal Reserve raises interest rates, mortgage rates follow. 

Signs of inflation are everywhere you look: at the grocery store, gas pump, and interest paid on credit cards. Americans are paying more for everything.

With inflation rates at more than 9 percent, prices at the grocery store are higher, thanks to food production costs and higher gas prices. At record highs, gas prices are adding to higher food costs. Companies are passing higher prices along to consumers.

Credit card debt is also skyrocketing, with more people using credit cards. Household budgets are tight, and credit card use is up to pay for essentials. Moreover, credit card interest rates are higher, costing people even 'more' money over the longer term.  

Sadly, consumers don't have much control over inflation and the rise in interest rates. You benefit from spending less to borrow more money when rates are lower.

Inflation is a real problem for potential homebuyers. As costs rise and salaries remain stagnant, there is less in each month's budget for a home. It's one of the big reasons buyers might be rethinking their decision. 

Housing Supply

Home prices are cooling slightly, but sellers still get record prices for their homes. It's a simple case of supply and demand because fewer homes are sold, and the price increases.

Much of the economic data indicates a housing shortage in the United States, meaning housing costs are rising.

With fewer homes on the market, the time it takes to sell a home also shrinks. Once the seller lists the home, buyers scoop them up quickly. Increased competition for a home means buyers will pay more for a house.

Buyers should also worry about paying an inflated cost when they buy a house. Eventually, the home prices will decrease, and the market will cool. For example, if you spend $200,000 for a home and it's later worth $150,000, you overpaid, and you won't get that money back. 

However, the home remodeling sector of the economy saw gains as the housing supply stock shrunk. Many people decided it was easier (and more affordable) to stay in their own homes and remodel than buy. 

Most housing experts believe the housing inventory situation won't change anytime soon, with higher mortgage rates being the likely trigger. 

Weak Economy 

Some economists argue the U.S. is in the early stages of a recession and that the economy will likely get worse before it gets better. What does a weak economy mean for your job situation? Will you be forced to take a pay cut if the economy worsens?

When you apply for a mortgage, you want to have a strong economy at your back. Companies typically make budget forecasts based on economic conditions. 

Will your job be there after you settle into your new home?

Economic uncertainty is a big reason you might be hesitant to apply for a mortgage. People buy a home based on what they can afford, and if your job evaporates, how will you pay your mortgage?

It's essential to take a good look at your economic future. You might use your savings to come up with the down payment and have little cushion. 

Reasons Why Mortgage Applications Are Down

There are several reasons why mortgage applications are down, including mortgage rates, inflation, housing supply, and a weak economy. A drop in mortgage applications means added volatility to the housing market. 

Before buying a home, you must check out and learn about the latest real estate news. When will market conditions ease and things return to normal? Contact us today and let us help you make an informed decision as you make arguably the biggest purchase of your life. 

Anita Cooper is a copy and content writer with a vendetta against bad copy. She helps real estate tech companies grow their pipeline by providing lead gen copy and content.

Have world real estate news to share?If you do and would like to interview, feel free to contact Anita at [email protected].
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