How the Increase in Housing Market Interest Rates is Impacting Mortgage Applications

increase in housing market interest rates

The housing market interest rates increase is delivering a blow to the purchase volume across the U.S. According to the Mortgage Bankers Association, the volume of mortgage applications have dropped 7.4%, 36% lower than it was during the same period in 2016.

In addition, the 10-year treasury yield for the U.S. increased 18 basis points in the last month, which has pushed the mortgage rates to their highest level since May of last year. Potential home buyers, or existing homeowners that are interested in refinancing, have been putting on the brakes. Industry professionals need to have their “toolbox” of resources full to properly respond.

There are several variables that can be considered when evaluating the current condition of the real estate marketplace.

Evaluating the Real Estate Market

The Influence of Economic Growth

The Fed continues to feel confident about the U.S. economy and job market. This has spurred the consistent elevation in rates over the past year with the average 30-year fixed-rate mortgage now up to 4.22%. The raise is producing a greater financial burden for a number of potential home buyers across the country, but the most significant impact has been placed on refinance applications — a whopping 58% reduction from one year ago. As a consequence, cash-out deals have become more attractive to existing homeowners.

What About the FHA?

The Federal Housing Authority (FHA) holds some power here too. What is a great influencer on purchase volume? Price. The price of homes, overall, has a greater impact on the number of homes sold than mortgage interest rates. Because FHA-backed loans come with low down payments and lower interest rates, this creates accessibility to financing to more people. It also decreases the average purchase application loan size. It remains to be seen if there will be any major policy changes regarding loans coming in the near future by the FHA under the leadership of Secretary Ben Carson.

The Industry is Listening to Janet Yellen

Federal Reserve Chair Janet Yellen continues to lead the tone of the real estate marketplace. With the housing market interest rates increase, realtors and lenders alike need to have their ears pricked up over the coming months to plan strategically for the impact of her statements to Congress and otherwise. Currently, it is expected that she will stay on message as the rates continue their upward trajectory. If Yellen alters the tone of her language, this could spark a shift in the market that could move rates.

Moving Forward

Responsiveness is key. Though purchase volume is being more heavily influenced by small supply and high home prices, the housing market interest rates increase creates its unique challenges to realtors and lenders alike. It is important to continue to stay informed of the latest news affecting the real estate market to serve companies and clients best. This gives individuals the power to adjust and react appropriately, providing value throughout fluctuations in the marketplace.

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