Homebuyers aren’t buying and homebuilders aren’t building in the face of untamed mortgage rates

‘Unhealthy and unsustainable’: Homebuyers not buying and homebuilders not building in the face of runaway mortgage rates

US mortgage rates rose again this week as demand for home loans fell, according to two widely watched reports.

Buyers and sellers are increasingly nervous as the average 30-year fixed mortgage rate – now more than double what it was at the start of the year – approaches 7%.

Homebuilders are also losing confidence in the housing market due to rising rates, which one industry leader calls “unhealthy and unsustainable.”

“High mortgage rates approaching 7% have significantly dampened demand, especially for potential first- and first-generation homebuyers,” said Jerry Konter, president of the National Association of Home Builders. said this week.

“Policymakers must address this deepening housing affordability crisis.”

Don’t miss

30 Year Fixed Rate Mortgages

The average rate on a 30-year fixed mortgage hit 6.94% this week, up from 6.92% the previous week, according to mortgage finance giant Freddie Mac announced Thursday. A year ago at this time, the 30-year rate averaged 3.09%.

Although the latest rate hike was more subdued than previous weeks, borrowing costs are still at their highest level in 20 years and are getting worse.

“The 30-year fixed-rate mortgage continues to hover just below 7% and is having a negative impact on the housing market in the form of lower demand,” said Sam Khater, chief economist at Freddie Mac.

“Furthermore, homebuilder confidence has fallen by half from just six months ago and construction, particularly single-family residential construction, continues to slow.”

15-year fixed rate mortgages

The rate on a 15-year fixed mortgage is averaging 6.23%, down from 6.09% last week, according to Freddie Mac. A year ago at this time, the 15-year rate averaged 2.33%.

Since then, shoppers have lost significant buying power and many have had to adjust their budgets or put their searches on hold.

Faced with fewer buyers, sellers are no longer able to call all the shots.

“Among recently sold properties that had been on the market for more than a month, sellers had to lower prices by an average of 12%,” said Nadia Evangelou, senior economist for the National Association of Realtors.

Read more: Did you buy a house before 2022? If the answer is ‘no’, you’ll likely be on the wrong side of financial inequality over the next decade – here’s why

5 Year Adjustable Rate Mortgage

The increasingly popular five-year variable rate mortgage (ARM) averaged 5.71% this week, down from 5.81% the previous week.

A year ago at this time, these adjustable mortgages averaged 2.54%.

This week’s rate cut should further fuel demand for the five-year ARM, which has a fixed rate for the first five years and then adjusts up or down depending on a benchmark like the preferential rate.

Buyers picked up variable rate mortgages at a rate not seen since the Great Recession, betting they’ll have the chance to refinance to a lower fixed rate mortgage before their ARM adjusts.

Mortgage rates could be at a ‘new normal’

Rates have risen steadily this year amid Federal Reserve stocks to curb inflation that has been high for decades, despite the pain it has caused consumers.

Today’s rates could be considered “the new normal,” says Evangelou.

She points out that rates of 7% were typical in the mid to late 1990s and early 2000s. Yet homeownership was higher then than it is now.

“Potential buyers today also have to contend with higher inflation,” says Evangelou. “As inflation outstrips wage growth, the typical family must stretch their budget and spend more than 25% of their income on mortgage payments.

“Including other expenses such as mortgage insurance, home insurance, taxes and property maintenance expenses, the costs of buying a home exceed 30% of a typical family’s income. .”

Loan requests this week

Mortgage applications fell 4.5% week over week, according to the latest report of the Mortgage Bankers Association (MBA).

“The speed and level at which rates have climbed this year has significantly reduced refinancing activity and exacerbated existing affordability issues in the purchase market,” said Joel Kan, vice president and deputy chief economist. of the MBA.

“Residential housing activity, ranging from housing starts to home sales, trended downward coinciding with rising rates.”

Refinancing applications for existing loans fell 7% from the previous week and were 86% lower than a year ago. The refi share of mortgage activity fell to 28.3% from 29% the previous week.

Mortgage applications to buy homes fell 4% this week – and were 38% lower than the same week a year ago.

“With rates at these high levels, ARM’s share increased to 12.8% of all apps, which was the highest share since March 2008,” Kan said.

“ARM loans remain a viable option for borrowers who are still trying to find ways to lower their monthly payments.”

What to read next

  • Should I wait for the housing market to crash before buying a house? 3 reasons why this real estate recession has nothing to do with 2008

  • ‘It was a tough and scary time’: Baby boomer financial experts who lived through the Great Inflation tale ways to get out of a recession

  • Here’s how much the average 60-year-old American has in retirement savings – how your nest egg compare?

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Leave a Comment

Your email address will not be published. Required fields are marked *