As the fall housing market kicked in, the number of mortgage applications fell to the lowest level since 1996 in the week ending Sept. 8, according to the Mortgage Bankers Association. The data was adjusted for the Labour Day holiday.

The reason for the drop is that mortgage rates have topped 7 percent in recent weeks, reaching their highest level in more than two decades. Many homebuyers can't afford to buy a home at these rates, and those who can are struggling to find homes to buy. Freddie Mac data shows that the average rate for a 30-year fixed-rate loan is 7.12 percent.

Mortgage applications decreased for the seventh time in eight weeks," Joel Kan, deputy chief economist at the MBA, said in a statement. Given that rates are so high right now, refinancing activity remains scarce and homeowners are less motivated to sell and buy a new home at a higher rate."

Home purchase applications are down 20.9 per cent from four weeks ago and 27.2 per cent from a year ago. The number of homeowners seeking to refinance their mortgages at the current higher interest rates fell even more sharply, down 31.1 per cent from last year.

I've never seen it this bad, said Richard Bettencourt, a mortgage broker who has been in the mortgage business for more than 20 years. He is president of Veterans Mortgage Brokers in the Boston suburb of Danvers, Mass.

But he's quick to point out that "you've just gone through a two-and-a-half-year period of the lowest interest rates."

During the COVID-19 pandemic, mortgage rates dropped to record lows below 3 percent. Many people bought or refinanced their homes and locked in low monthly payments. Understandably, these people were reluctant to refinance at higher rates unless they had no other choice.

With interest rates so high, first-time and repeat buyers may no longer be able to afford their monthly mortgage payments. Homeowners, on the other hand, are staying put because they don't want to put their homes on the market if they have to buy a new home with a higher interest rate.

Says Bettencourt, "Most mortgage professionals will tell you they have a lot of pre-approved paperwork in their drawers, even with mortgage rates so high. But there's nothing on the market."