Mortgage Demand Drops to Lowest Level Since Pre-Pandemic Times

Mortgage application volume is on a downswing. Are buyers finally saying "enough is enough" to inflated home prices?

There was a point last year when mortgage lenders were facing such a high volume of home loan applications they could barely keep up. But that hasn't been the case of late.

Mortgage demand has declined substantially for two weeks in a row. And for the week ending July 2, 2021, application volume decreased 1.8%, according to the Mortgage Bankers Association's seasonally adjusted index. That's significant because it marks the lowest level of weekly mortgage volume since early 2020, before the coronavirus pandemic began to take a toll on the economy.

Both new purchase mortgages and refinances declined last week, though it's worth noting that refinance levels have trended lower than 2020 levels for the past four months. That could stem from the fact that many people who were eligible for major savings by refinancing did so during the latter part of 2020, when rates were even lower than where they're sitting today.

But what's more significant is that there were fewer applications this past week for purchase mortgages. In fact, this decline comes at a time when mortgage rates dipped compared to where they sat the week prior.

Have buyers had enough?

For months, there's been a dearth of available homes on the market, and it's made for a miserable house-hunting experience for a lot of people. Not only have bidding wars become extremely common in today's real estate market, but they've also caused many potential buyers a lot of heartache and stress. Throw in the fact that home prices have been inflated to begin with, and it's easy to see why mortgage demand may finally be falling, despite slightly lower interest rates.

Now to be clear, a two-week decline in mortgage applications shouldn't necessarily sound alarms. But it may be an indication that buyers are starting to back off and wait for the housing market to settle down price-wise.

That said, it may be the case that more Americans are traveling this summer and are focusing on social plans more so than house hunting. That could partially explain the recent decline in mortgage application activity.

But still, many buyers may have reached the point where they can't keep spinning their wheels and bidding on homes they know they're going to lose to a higher offer or an all-cash buyer who doesn't need a mortgage. And those same buyers may now be choosing to hit pause on their home searches until more housing inventory becomes available. Once that happens, the demand for homes should start to lessen, and prices should start to tick downward.

Of course, if the recent decline in mortgage demand stems more so from buyers getting distracted by vacation plans than anything else, we may see application volume pick up in the coming weeks or perhaps later on in the summer. But if mortgage demand continues to fall week after week, it could signal a turnaround in the housing market that could benefit buyers. Ultimately, only time will tell as to which scenario actually pans out.