US Mortgage Rates Hit 2009-Levels, Applications & Pending Home Sales Crater

Soaring mortgage costs are rapidly cooling the frothy American real estate market. Mortgage applications and pending home sales cratered, show leading indicators released this week. Demand is being throttled by rising mortgage rates, which are now at the highest level since 2009. Home prices have yet to respond to the fall in demand, but experts say it’s only a matter of time.

US Mortgage Rates Have Hit The Highest Level Since 2009 and Demand Has Disappeared

US mortgage rates have climbed aggressively with inflation and it’s killing demand. Applications dropped for the week of April 22nd, said the Mortgage Bankers Association (MBA). Purchase applications fell 17% from last year, and refinancing applications fell 70%. MBA attributed the drop to rates, which they said hit the highest level since 2009.

BMO senior economist Robert Kavcic wrote to clients to explain this isn’t just a one off. He argues there’s a trend due to inflation and rising rates. This indicates a more broad slowdown is approaching. 

“Perhaps there were some holiday distortions, but the bigger picture is that activity is cooling. Refinancing activity is now minimal alongside the surge in mortgage rates, and purchase applications are down 17% y/y,” said Kavcic.

US Pending Home Sales Have Fallen Sharply

The National Association of Realtors (NAR) also found pending home sales have fallen. Pending sales of existing-homes in March, a leading market indicator, fell 8.2% from last year. Demand was high last year, but the drop rolled pending contracts to pre-2020-levels.

“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said Lawrence Yun, NAR’s chief economist.

Yun directly attributes the sudden collapse in demand to higher mortgage rates. Higher mortgage rates reduce the pool of eligible buyers, lowering potential activity. Fewer qualified buyers leads to fewer multiple bid transactions. Fewer bidders mean less competition and price growth can cool. Straightforward, right? 

Kavcic notes the slowdown in the same piece, to build a more broad case the market is cooling. “…pending home sales were down five months in a row through March, as demand cools. After a pandemic-era surge, the level of activity is now back into the range of what was ‘normal’ in 2019,” he explained.

Adding, “the prospect of tighter monetary policy is already cooling demand, which we have long believed to be the bigger driver of inflation. Home price momentum will take a bit longer to follow, but some cooling is likely on the horizon….”