September was the worst month for mortgage applications in 30 years

Lower interest rates are not helping the housing market
By Sam Bourgi
•
04 October 2024
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Demand for U.S. mortgages has continued to decline in recent weeks, with September marking the worst month for purchase applications in decades.

According to Reventure Consulting, the mortgage demand index plunged to 142 in September, the lowest reading since 1994. This index tracks mortgage purchase applications across the United States.

Since 2020, mortgage applications have declined by a whopping 55% and currently sit 44% below pre-pandemic levels.

September marked the “lowest level of buyer demand in 30 years,” said Reventure App CEO Nick Gerli.

So far, “Fed rate cuts [are] not having the stimulative impact on the housing market that many hoped for,” said Gerli.

Like in August, Gerli warned Americans against believing the hype about rebounding mortgage applications, because it simply isn’t true.

Although mortgage applications have crept up slightly from their lows two months ago, they “remain at rock bottom levels,” he said.

Housing demand hasn’t picked up despite a sustained drop in mortgage rates over the past four months. Economists blame this on a worsening affordability crisis that has prevented many Americans from seriously considering a home purchase.

In Gerli’s view, “buyers remain on strike, not influenced by lower mortgage rates.”

Rates are falling, but aren’t low enough

As The Kobeissi Letter explained, mortgage applications and sales are tanking “despite mortgage rates falling by 1.1 percentage points since May.”

The financial publication reported that “pending home sales have declined for a third consecutive month and hit another record low in August.”

According to the latest data from Freddie Mac, the average 30-year fixed-rate mortgage fell to 6.08% as of Sept. 26, the lowest in two years. But as Creditnews recently reported, rates need to fall much further to move the needle on home sales.

Moody’s economist Nick Villa believes rates need to drop below 5.25% before an average-priced home becomes cheaper than rent.

At current mortgage rates, homeownership is far more expensive than rent in every major U.S. city. According to Creditnews Research, the monthly difference between homeownership and renting ranges between $567 and $11,303.

In the meantime, renters seem content waiting on the sidelines until interest rates decline.

According to a recent study by BMO Financial, 71% of aspiring homeowners are waiting for financing costs to decline before they begin house hunting.

These aspiring buyers may get what they wish for now that the Federal Reserve is aggressively cutting interest rates.

Top central bankers have told Americans that interest rates are heading much lower over the next 12 months, which could potentially ease affordability constraints.

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