The rise in mortgage rates has been causing mortgage demand to shrink across the United States. Interest rates on government-backed mortgages recently hit their highest level in nearly 23 years, and this surge in rates has had an effect throughout the country.
The Federal Reserve raised benchmark interest rates in early December, and these increases have caused mortgage rates to go up. Rates on 30-year fixed rate mortgages have jumped from 4.45% to 4.86%, an increase of 1.08%. This marks the highest rates on government-backed mortgages since April of 1995. The change has affected how attractive these mortgages are to homeowners and potential homeowners, leading to a reduction in demand.
Mortgage demand has dropped significantly as a result of these higher mortgage rates. Applications for home purchase loans decreased in mid-December by 16% compared to the previous year. Furthermore, mortgage applications for refinancing have dropped by over 24% within the last month.
These drops in mortgage applications translate into fewer purchases of homes. This is particularly concerning since existing home sales have already been declining over the last several months.
However, despite the decrease in mortgage demand, the real estate industry is still managing to stay afloat. The low supply of homes available for sale and a lack of other competitive mortgage options means that home buyers and potential home buyers are still willing to pay higher prices to secure a home.
For current homeowners, increasing mortgage rates can be beneficial as well. This increase leads to higher yields on mortgage bonds, a common investment for many people. Many investors have seen their returns increase due to these higher rates.
In the long-term, increased rates may start to cause further decline in mortgage demand. As rates stay at their highest levels in nearly 23 years, it will become less attractive for people to take out mortgages. This could lead to an eventual decrease in home prices and an overall weakened housing market.
Ultimately, it’s clear that the recent surge in mortgage rates is having an effect on the demand for these mortgages. This could potentially lead to further weakening in the housing market over time. It remains to be seen how long the effects will last or how far they will extend, but what’s certain is that mortgage rates at their highest levels in over two decades is causing a noticeable decline in mortgage demand.