“Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power. In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market.” Sam Khater, Freddie Mac’s chief economist, said in the statement.

For some context, this is the fastest three-month rise in 30Y mortgage rates since 1994…

Which implies the plunge in mortgage applications has further room to fall…

And existing home sales could be set for a freefall…

Housing affordability tends to lead the trajectory for existing home sales, by roughly half a year. According to BofA, the rates shock suggests affordability will be down more than 25% YoY by March – a record decline – with additional downside from higher home prices! If demand follows a similar trajectory, existing home sales could fall below 5mn saar by 2H 2022.

And this further massive rates move suggests that the affordability index will see another significant move lower.

This all reinforces warnings from the latest existing home sales report, with NAR chief economist Larry Yun cautioning that “housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases.”

Interestingly, given the extraordinary supply challenges, BofA expects home prices to stay hot at a 10% Y/Yclip in 2022 despite the record plunge in housing affordability and despite existing home sales pulling back. In other words, 2022 will likely be the last hurrah of the US housing market.