As mortgage demand plunges to its lowest point in three decades, a chill is settling over the US housing market that even rate cuts and post-election optimism have failed to thaw. Data from the Mortgage Bankers Association underscores just how dire the situation has become, with purchase applications for the week ending November 20th down nearly 50% compared to 2019 and even further below the pandemic highs. This downturn, which has been steadily building throughout the year, suggests the housing market is headed for a bleak winter unless sellers adjust their expectations.
The sharp drop in mortgage applications is not just a fleeting blip; it’s a harbinger of trouble ahead. Applications, a leading indicator of home sales, are the lowest they’ve been since the early 1990s, a period long before the housing boom and bust cycles of the 2000s. What this means is simple: fewer buyers today are likely to result in sluggish home sales in December and January. And this decline in demand comes despite a confluence of factors that should, in theory, have boosted the market.
The Federal Reserve has twice eased interest rates in recent months, and the post-election period often brings a sense of economic stability. Yet, neither has sparked movement among buyers. Instead, a pervasive sentiment of caution dominates. According to the latest University of Michigan Sentiment Survey, 84% of Americans believe it’s a bad time to buy a home—an unprecedented level of pessimism that surpasses even the sky-high mortgage rate days of the 1980s.
The core of the problem lies in prices. Home prices, adjusted for inflation and income, have reached record highs in 2024, surpassing even the peaks of the 2006 housing bubble. For many buyers, this disconnect between asking prices and perceived value is too much to bear. Imagine a buyer hoping to find a home priced at $350,000, only to discover that similar properties are listed at $500,000. Rather than compromising or overextending themselves, they simply walk away.
This inertia in the market is creating a feedback loop: high prices discourage buyers, leading to fewer transactions, which in turn pressures sellers to reconsider their pricing strategies. If sellers want to offload their properties this winter, the path forward is clear—lower prices. Without meaningful reductions, many listings may sit idle for months, waiting for a demand resurgence that shows no signs of arriving.
While the broader housing market is grappling with these challenges, it’s important to note that real estate trends are highly regional. Markets like Florida and New York are painting vastly different pictures for 2025 price forecasts, influenced by local economic conditions, migration patterns, and varying levels of inventory. But even in these regions, the overarching issue of affordability looms large.
The drop in mortgage applications reflects more than just economic headwinds; it captures a shift in buyer psychology. Homebuyers are no longer willing to stretch themselves thin for properties they perceive as overvalued. And while some might argue that sellers can afford to wait for conditions to improve, this strategy could backfire if inventory builds up and price cuts become unavoidable.
The winter ahead could very well serve as a litmus test for the resilience of the US housing market. Will sellers adapt to meet buyers’ expectations, or will they hold firm, hoping for a spring rebound that may or may not come? Either way, the numbers suggest tough months ahead for sellers, and without significant price corrections, the freeze could linger longer than anyone anticipated.
