DENVER, CO – As home loan interest rates continue to rise (currently hovering around 5.378 percent, which is the highest in 13 years), demand for mortgages has begun to cool, showing that the housing market may be showing signs. stabilization after more than a year of breakneck activity fueled by low interest rates and cheap money.
According to the Mortgage Bankers Association, home mortgage applications are down 12 percent over the last three weeks; year over year, applications are down 15 percent overall.
The reason for the decline in demand is higher borrowing costs that have turned away some potential home buyers; the average rate for a 30-year loan is currently about 5.378 percent, which is the highest level in 13 years.
Interest rates have risen two percent just since the start of 2022; In contrast, interest rates were at just 2 percent a year ago, representing the fastest level of growth since May 1994.
MBA associate vice president of economic and industrial forecasting Joel Kan said concerns about affordability have become a very real reality for many homebuyers lately, after many enjoyed record-low interest rates over the course of from last year.
“Purchase applications fell 12% last week as would-be homebuyers have been put off by higher rates and worsening affordability conditions,” he said. “General uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay looking for a home.”
Mortgages are not the only facet of the lending industry that is being affected by rising interest rates; Refinancing of existing home loans is also facing a lull, with demand down 76% from the same period in 2021, with an average weekly loss of 10%.
Part of the reason for the rise in interest rates is due to the Federal Reserve’s attempts to curb skyrocketing inflation and stabilize the housing market, which reached high levels not seen for many years during the COVID-19 pandemic.
In early May, the Federal Reserve announced the biggest increase in interest rates in more than 20 years, with the benchmark interest rate raised by 0.5 percentage point to a target rate range of between 0.75 and 1 percent; that increase follows a 0.25 percent increase in March, with more increases expected in the near future, possibly in June and July, which will likely continue to cause borrowing costs to rise further.
The goal of the rate hikes, according to Fed Chairman Jerome Powell, is to get inflation back in line with the Fed’s two percent target; currently, inflation in the United States hit 8.3 percent in April, which represents a roughly 40-year high.
“What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said. “If that means going beyond widely understood levels of neutrality, we won’t hesitate to do that.”