Higher interest rates and inflation crush homebuyer demand to a 22-year low.
POINTS TO NOTE
- Despite rising inflation and interest rates, American consumers are being hammered by the economic downturn and the housing market is being affected.
- According to the Mortgage Bankers Association, mortgage demand dropped to its lowest point since 2000 last week, which was the lowest level since 2000.
- With rates having nearly doubled since early this year, buyers have lost a considerable amount of purchasing power, which is a very serious problem.
Higher Interest Rates And Inflation Crush Homebuyer Demand To A 22-year Low
American consumers are suffering more and more as higher interest rates and inflation continue to hammer the mortgage market, and the situation is only going to get worse.
According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage activity dropped by more than 6% last week compared with the previous week, hitting its lowest level since 2000.
During the week ended May 3, applications for mortgages to purchase a home were down by 7% from the same week last year and were down by 19% from the same week last year. In spite of the fact that buyers have been contending with high prices all year, rates have almost doubled since January, which means that buyers have lost some of their purchasing power.
Despite the weakening economic outlook, high inflation, and persistent affordability challenges, purchase activity declined for both conventional and government loans according to Joel Kan, an economist at MBA. He attributed the decline to the weakening economic outlook, high inflation, and persistent affordability challenges.
It is true that buyers are less affected by changes in interest rates on a weekly basis, however, the broader picture of rising interest rates has already had a significant impact on buyers. Last week, mortgage rates rose again after an eight-week decline, following a slight decline a few weeks earlier.
There is an increase of 0.65 points (including the origination fee) on 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) from 0.59 points (including the origination fee) for loans with a 20% down payment against an average contract interest rate of 5.82% from 5.74%. One year ago, the same week, the rate was 3.11%, which is an increase from this week.
There was a 4% drop in refinance activity for the week, which is largely influenced by interest rates, and 80% lower than this time last year according to the FHA. The number of refinancing applications is also at a 22-year low, but with a drop in demand from homebuyers, the share of refinancing applications has increased from 30.8% last week to 31.4% this week as a result of the drop in demand.
The mortgage interest rates haven’t moved as much this week as they did in the past, but due to the increased volatility in the bond markets, that may soon change. In order to combat inflation, the Federal Reserve is expected to increase interest rates by 75 basis points next week, and other central banks are taking similar measures to do so. The basis point is equal to 0.01% of a percentage point.
It is especially true next week as markets digest the newest policy announcement from the Federal Reserve next Wednesday, but Thursday’s policy announcement from the European Central Bank may also have an impact on U.S. interest rates due to Thursday’s announcement from the European Central Bank,” said Matthew Graham, chief operating officer of Mortgage News Daily.