A gauge of U.S. mortgage applications for home purchases fell to a 28-year low last week, underscoring the stifling effect of high mortgage rates on buyer demand.

The Mortgage Bankers Association index of home-purchase applications decreased 2.1% to 141.9, the lowest level since April 1995, according to data out Wednesday. The contract rate on a 30-year fixed mortgage dropped 10 basis points to 7.21% in the week ended Sept. 1 but remains near its highest level in decades.

Including a decline in refinancing activity, the overall measure of mortgage demand fell 2.9% to a nearly 27-year low. 

High mortgage rates have pushed homeownership further out of reach for many Americans and driven housing affordability to its worst point in decades. Meantime, borrowers with pandemic-era low mortgage rates are loathe to give them up, crimping inventory and keeping upward pressure on home prices, compounding the issue.

Newly constructed homes have filled some of the supply gap, but it’s difficult to see any sustained reprieve for potential homeowners until borrowing costs subside. Even then, though, the ensuing pickup in demand threatens to boost prices even higher. 

The Federal Reserve, however, doesn’t appear to be cutting interest rates any time soon. Policymakers have not only indicated that borrowing costs may need to go higher but also that rates will need to remain high to tame inflation.

The survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the U.S.

This article was provided by Bloomberg News.