Higher mortgage rates denting housing market activity

The steady increase in mortgage interest rates is now having a more noticeable effect on housing market activity. Mortgage applications for refinancing have more than halved since rates began rising and applications for home purchase are down by 13%. Meanwhile, new home sales fell by 13% m/m in July. Existing home sales posted a decent gain, but this appears to be due to a rush of sales timed to beat further increases in mortgage rates. Nevertheless, we think that higher rates will slow, but not derail, the recovery in housing market activity. The bigger picture is that the cost of credit, even at today’s slightly higher rates, is historically very low.