Mortgage Demand Plummets 10% As Buyers Pull Back Ahead Of Fed Rate Hike

Mortgage demand fell more than 10% during the last week in a sign that prospective buyers are pulling back from the market ahead of an expected interest-rate hike by the Federal Reserve.

The Mortgage Bankers Association (MBA) released its latest data on Wednesday that suggested heightened activity since the start of the year. However, the MBA found it is 12% lower than the same period last year.

Throughout last year, the U.S. housing market rebounded sharply from the downturn experienced in 2020 when the COVID-19 pandemic arrived. The supply of available homes lagged behind surging demand. Complicating the situation was a preexisting labor shortage in the construction sector and supply chain issues with construction materials driving prices higher nationwide.

Joel Kan, MBA's chief economist, wrote that mortgage rates continued to edge higher with the 30-year, fixed-rate climbing to 3.83%. He added that "growing inflationary pressures" were spurring central banks worldwide to begin turning off the tap on the billions of stimulus dollars they pumped into the economy at the height of the pandemic.

"Purchase activity slowed after the previous week's gain. Both conventional and FHA [Federal Housing Authority] purchase applications saw proportional declines," said Kan.

In another sign that market demand may be contracting, Kan noted that the size of home loans had grown larger. The average loan size again hit another record high at $446,000, which Kan indicated was a sign that "inventory remains tight for entry-level buyers."

The Federal Reserve is due to meet next in March when it is expected to begin raising rates and bring its tapering of stimulus funds to an end.