Mortgage rates near 7.5% drive home purchase applications down for a fifth week

Converted to levels, refinance applications are running at about 21% of the same week in 2019 ^[17] and stood near 52% of it a year ago ^[18]. Roughly 40% of the fall from 2019 came in the past twelve months ^[18]. Purchase applications slid from about 68% of the 2019 level a year ago to about 58% now ^[19].

The MBA's weekly measure held between 6% and 7% for more than four years, with one brief breakout in late 2023 ^[1]. At 7.49% it sits 49 basis points above the top of that range ^[20]. Mortgage rates track long-term Treasury yields plus a spread that varies over time ^[4]. The daily jump followed a rise in yields ahead of the 10-year Treasury auction ^[5], and the daily rate ended 14 basis points above the weekly figure ^[21]. Next week's MBA number is likely to start higher unless the bond market reverses ^[21].

Wolf Richter, writing on Wolf Street, rests his case on house prices. Before 2008, he wrote, 7.5% mortgages were considered normal to low ^[2], and prices rose 50% or more in many markets over a two-year span ^[16]. "If homeowners want to sell their homes, there is a market, but they have to get real on price," he wrote ^[15]. The MBA series counts applications, not closed sales, and his piece does not include a price index for the declines he reports ^[25].

If yields fall back after the auction and the rate returns inside the band, refinancing recovers first, because refi demand jumps whenever rates dip ^[10]. If the rate holds above 7%, purchases keep sliding until sellers cut. Richter expects that outcome: the above-7% range "is triggering demand destruction at current prices," he wrote ^[14]. A third possibility is that prices fall far enough to bring buyers back at 7.5% ^[3]. I think the second path fits the purchase data best, because buyers had already been scarce for four years ^[8] and the decline has now run five weeks in a row ^[6]. That view is wrong if purchase applications stop falling while the weekly rate stays above 7% and asking prices hold.

On the HELOC side, drawn balances grew by about $48 billion in the year to the second quarter ^[22] and by roughly $142 billion since the low in early 2021 ^[23]. Those borrowers keep their existing mortgages and take cash out through the line ^[12]. The balances exclude the unused portion of the lines ^[13].