Mortgage Rates Are Affecting Demand

Mortgage rates continue to increase rapidly into the second month of the calendar year. As many experts predicted, mortgage rates have finally increased enough to affect demand on the buyer’s side. Week-over-week mortgage applications fell by 8%, according to a weekly summary coming from the Mortgage Banker’s Association. Not only have new loan originations declined, interest in refinancing is also decreasing. According to the same weekly survey, refinances dropped by 7% and purchasing fell by 10%. Here is why mortgage rates are affecting demand.

Mortgage Rates and Affordability

As rates continue to climb alongside home prices, affordability is brought into question more often. With higher mortgage rates impacting your monthly payment, it is important to realize that the longer you wait, the more you will pay. For buyers and sellers alike, waiting to make your real estate decision will cost you. Moving hand-in-hand are home prices. According to the Mortgage Banker’s Association, the average loan size hit another record high. This record high comes in at a whopping $446,000, as buyer demand has pushed up prices.

As activity in the real estate market begins to slow, those buyers who are actually able to purchase regardless of the rate environment, will do just that. Demand is being stifled as interest rates on new loans have increased to the highest level since before the pandemic. In fact, for those that want to follow mortgage rates and how they move, now might be the time. There is a lot of real estate data, as well as economic data and policies that are going to shape the market the next few months. Because demand has been slowed slightly, especially for lower-end buyers, the market looks to slow as a whole. The main reason we are seeing loans get more expensive is because there is such a low inventory in terms of entry-level homes. Because of the lack of supply, home loan prices are skewed to the upside.

Buying With Higher Mortgage Rates

As one of the most desired goals for Americans, homeownership has become harder throughout the end of 2021 and start of 2022. The price of homes have increased by close to 20% year-over-year. That makes middle-class homebuyers almost unlikely to be able to find a home in this market. Working with a great real estate professional can help these entry-level buyers find a home in this market. With a surge in home prices behind us, experts are still predicting a home price increase in 2022. In fact, there is expert predictions at levels as high as 8% increases for 2022. Over the past week, mortgage rates have increased to 3.83%, from 3.78% the week prior. This is up substantially from what we saw at the lows in 2021. Not only are these over a percent higher than 2021, but they are close to .5% higher than December 2021.

“Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies,” according to Joel Kan of Mortgage Banker’s Association.