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The housing market is showing signs of slowing in the midst of a scenario many predicted: rising interest rates. They have now climbed to an 8-year high, fostering a drop in mortgage applications which have reached a 4-year low.
Last week, mortgage applications reached their lowest level since December 2014, according to a new report released by the mortgage bankers Association. The drop is considered by many to be clear evidence that the housing market is slowing.
The total number of mortgage applications fell 4 percent last week. Compared to a year ago, overall volume is a whopping 16 percent lower.
Not only are fewer Americans applying for new mortgages, but fewer are refinancing their existing loans. The latest report shows a 3 percent decrease in refinance applications. Rising interest rates are reducing the incentive, as well as, benefits for homeowners to refinance.
The Federal Reserve bumped up the Fed Funds interest rates by .25% three times in 2017. This past year, the Fed increased interest rates by the same amount an additional three times. Lending interest rates have now reached an 8-year high, while the Feds fund rate is now the highest it has been since 2008, currently at 2.25%.
Last week, the average contract interest rate for a 30-year fixed-rate mortgage with conforming loan balances increased to 5.15 percent. This marks the highest rate for home mortgages since April 2010.
The increase in mortgage rates have been seen as the tipping point in leading to a decline in sales for the housing market.
As a result of climbing interest rates, many would-be homebuyers are qualifying for less. Inventory is tight, which is pushing some struggling buyers to settle for whatever they can get. Still, many others aren’t willing to settle.
The bigger impact interest rates and available inventory are having on the market is that many potential homebuyers are viewing current conditions as unfavorable and are electing to wait it out. They aren’t willing to settle for some of these less desirable homes, nor can they afford to pay or don’t wish to pay current interest rates.
Therefore, prospective buyers are simply sitting things out and waiting for interest rates and/or housing prices to drop and available home inventories to improve.
As a result, these conditions appear to be slowing the housing market, having an impact buyers and sellers alike, while reducing the business and livelihoods of realtors and lending institutions.
