Following roughly a two-year stretch of the housing market being extremely hot, it seems as if it is finally cooling off. This is following a report stating that mortgage applications fell to the lowest level in 22 years.
Report Details
Applications dropped by 6.5% as of June 3rd, which is on-trend as there have now been 4 consecutive weeks of decline for mortgage applications according to the Mortgage Bankers Association. Additionally, purchase activity fell by 7% and refinancing activity dropped by 6%.
Factors Contributing
As interest rates have now been increasing for some time, there was initially a much lower demand for refinancing, whereas, the low demand has spread to purchasing as well. On top of interest rates increasing, the actual prices of homes are continuing to increase. The increase in pricing has not been a small one either, according to a report by CoreLogic, “Home prices nationwide, including distressed sales, increased year over year by 20.9% in April 2022 compared with April 2021.” Other sources state that home prices are up around 40% since the beginning of the pandemic.
How Americans are Reacting
For first-time homebuyers, entering the market is becoming more difficult and more expensive. This prompts many to have to make a tough decision; take on larger monthly payments, buy less desirable houses, or take a step back from the market.
Those who already own a home and still owe a mortgage, also are impacted negatively. Rising interest rates are causing owning a home to be more expensive than before. According to the Federal Reserve Bank of Atlanta, a median American household needed 38.6% of its income to cover payments on a median-priced home in March. This is up from 32.6% at the end of 2021.
Wrap Up
As the housing market is seeming to now cool off, it will be interesting to see when prices will drop, especially as interest rates are poised to continue rising, making many homes unaffordable for buyers. On top of this, as fewer homes are being purchased, the housing inventory will surely see an increase, furthering the logic behind a price drop.