Spring Season Homebuying Hampered by High Mortgage Rates

Soaring mortgage rates are taking a toll on homebuyers — and slowing the usually busy spring homebuying season.

Mortgage applications for new home purchases increased at an annualized rate of 6.2% during the 12 months ended in March, according to data released Tuesday by the Mortgage Bankers Association. That’s the slowest annual rate of growth since December. On a monthly basis, applications increased 1% compared to February.

“March is typically a month when new home purchases see a seasonal boost,” Joel Kan, vice president and deputy chief economist at the MBA, said in a statement. “Homebuyers remain adversely impacted by strong home-price growth and mortgage rates hovering around 7%.”

At the same time, mortgage applications edged higher the week ended April 12, climbing 3.3% from one week earlier, according to the MBA’s weekly survey released Wednesday. The data marks the second week of increase in applications even as mortgage rates have inched upward, crossing the 7% threshold and reaching their highest level since December.

“Despite these higher rates, application activity picked up, possibly as some borrowers decided to act in case rates continue to rise,” Kan said. “Purchase applications drove most of the increase, but remain at low levels of around 10 percent behind last year’s pace.”

Mortgage rates have been trending upward after stronger-than-anticipated economic data — namely in the job market and consumer prices. That’s forced the Federal Reserve to reconsider its timeline for lowering its federal funds rate, which impacts mortgage rates. As long as the Fed puts off cutting interest rates, analysts largely anticipate mortgage rates will remain elevated.

That’s affecting buyers and builders in a big way.

The MBA estimates that new single-family home sales fell 10.7% in March, marking the slowest annual pace in four months, Kan said.

At the same time, builders started construction on 12.4% fewer single-family homes in March than in February, according to data released Tuesday by the Census Bureau. That’s the largest monthly decrease since April 2021.

Total housing starts declined 14.7% month over month, the largest decline since April 2020. On a yearly basis, housing starts dropped 4.3%.