Are we in Trouble? United States is dealing with the highest inflation in four decades. Bankers Lower Mortgage Demand Outlook for the Year

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Mortgage bankers throughout the country are lowering their forecasts for the year as interest rates continue to rise, making homeownership even more expensive. According to the Mortgage Bankers Association, overall mortgage originations, including refinancing loans, will exceed $2.58 trillion in 2022, down 35.5% from 2021. 

The MBA’s estimate, which represents more than 2,000 companies in the industry, reflects some startling economic realities in the United States. The housing market is tight on supply, and prices are high. The United States is dealing with the highest inflation in four decades, and the Federal Reserve is hiking interest rates rapidly to keep it in check. Refinancing demand has dropped considerably in recent months as interest rates have risen. Applications to refinance a home loan declined 5% in the previous week, and the refinance proportion of overall mortgage applications fell to 37.1% from 38.8% the week before.

Homebuyers Get Desperate in Overheated U.S. Spring Sales Season

In the hottest season for home sales in the United States, the affordability window is rapidly closing. Spring brings a surge in property sales in the United States, but this year’s buyers are in a dangerous position. They’re racing against the clock to beat skyrocketing borrowing rates and soaring prices that threaten to put them out of business – a direct opposition to the Federal Reserve’s efforts to moderate the overheated housing market by boosting interest rates.

According to the Mortgage Bankers Association, applications for Federal Housing Administration mortgages, a significant source of financing for first-time buyers, decreased by over 20% last week compared to a year ago. Inventory has been hovering at record lows for months, adding concerns because homeowners with low-cost mortgages are hesitant to market their homes. After all, moving would require them to obtain a new, more expensive loan.

The danger is that those driven to own a home may be forced to stretch their budgets beyond their means. The difficulty arises when enough purchasers act on the premise that the current rate of price increases will continue, according to research released last week by the Dallas Fed, which noted symptoms of a growing housing bubble in the United States.

Redfin Reports Early Signs of Cooling Housing Market Seen in some U.S. Cities

In Redfin’s research on Friday, they said that there are early signs of a cooldown in some of the hottest parts of the U.S. housing market, a new indicator that rising house prices and growing mortgage rates are cutting into homebuyer activity.

For instance, Google searches for “homes for sale” dropped by double digits in the second week of March from a year earlier in Baltimore, Boston, San Francisco, and Los Angeles; data from ShowingTime reports tours of homes for sale in California were down 21% as of March 31 from the first week of 2022. Moreover, Redfin agents in San Francisco, Los Angeles, Washington DC, Boston, and Seattle reported a drop in requests for homebuying assistance; and agents in California see fewer offers on each home than previously.

The Zillow Home Value Index shows that home prices have climbed nearly 35% in the two years since the COVID-19 pandemic hit the country, and the Federal Reserve lowered short-term interest rates to near zero. As the economy reopened last month, the Fed began hiking its policy rate to bring down decades-high inflation. Longer-term borrowing costs have risen quickly in expectation of more aggressive rate hikes.

The Mortgage Bankers Association (MBA) reports that the average interest rate on a 30-year fixed mortgage increased to 4.9% last week, a new three-year high. However, according to the analysis, there are already hints of a price slowdown in the coming months.

Next week’s potential market moving reports are:

  • Monday, April 18th – NAHB Home Builders’ Index
  • Tuesday, April 19th – Building Permits, Housing Starts
  • Wednesday, April 20th – Existing Home Sales
  • Thursday, April 21st – Initial Jobless Claims, Continuing Jobless Claims
  • Friday, April 22nd – No Report

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.

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