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As inflation woes continue to grip many in the United States, interest rates on home mortgage loans hit their highest point in the last two months, reducing consumer demand for housing as concerns over affordability continue to taint the market for many middle-class families.
According to new data published this week, a significant number of Americans are currently seeking home loans, with the ’s (MBA) index of mortgage applications experiencing a 5.7 percent decrease.
Joel Kan, MBA’s Deputy Chief Economist, noted that interest rates on the standard 30-year fixed rate home mortgage, after experiencing a slight decrease in recent months, are now creeping back up in the direction of their seven percent high once again.
This malady is clearly shaking the confidence of consumers who otherwise might be shopping for a home, Kan said.
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“Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months at 6.57 percent,” he said. “Purchase applications decreased 5 percent to its slowest pace in a month, as buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce.”
Rising interest rates have also contributed to a plunge in the demand for home refinancing loans as well, with applications recently decreasing 8 percent. Compared to the same period of time in May 2022, the number of applications being submitted for refinancing loans this month are down 4 percent year-over-year, a figure that Kan said was stunningly high and completely out of the norm.
“Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate-sensitive,” Kan said.
The housing market is extremely sensitive to interest rates, more so than many other industries, and the steadily climbing rates on home mortgages have caused conditions to cool significantly.
The Federal Reserve, in its continuing efforts to combat inflation rates in the country that have been hovering at 40-year high levels following the COVID-19 pandemic, have continuously raised interest rates. The reasoning behind the strategy, according to a statement released by the agency, is to help sustain growth the country has been experiencing lately and to make sure the economy doesn’t backtrack.
“Recent indicators of spending and production have softened,” the statement said. “Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
In an attempt to right the ship in terms of inflation, the Fed has already lifted the benchmark federal funds rate 10 times in a row since mid-2022; However, this has had the effect of raising interest rates on borrowing across the board, including car loans, credit cards, and, of course, home mortgages.
Those higher mortgage rates have lowered consumer demand and caused a drop in home prices, which had skyrocketed during the midst of the pandemic. Peaking at 7 percent, home loan rates have slowly reduced and the market was beginning to show signs of life again, but the increase in rates this week will obviously give consumers who were considering finally taking the plunge on a house cause for concern.
A separate survey from Mortgage News Daily confirmed MBA’s data, with their report showing that the average rate on the 30-year fixed rate home mortgage increased this week from 6.59 percent to 6.69 percent. Despite rates still below their high point of 7 percent, they nonetheless remain significantly higher year-over-year; in may 2022, they were as low as 5 percent.
Limited housing inventory this month has, however, increased demand to a degree, as well as causing prices to jump as well; according to Realtor.com, the number of homes currently available on the market for purchase is over 50 percent lower than before the pandemic began.
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