Mortgage demand plummets to 2023 lows as rates rise for week two – but experts predict falling rents will eventually push rates below 6%

US mortgage rates rose for the second straight week after reports the economy added a staggering 517,000 jobs and inflation rose 0.5% in January.

“At this rate, Americans have to pay at least 18% on a home purchase at the median price if they don’t want to be burdened with expenses,” said Nadia Evangelou, senior economist for the National Association of Realtors (NAR). ).

While demand has softened amid higher interest rates, the spring home buying season could see the average 30-year home loan slip closer to the 6% mark – and buyers to return to the market.

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30-year fixed-rate mortgages

The average 30 years fixed rate rose from 6.12% to 6.32%. A year ago at this point the rate averaged 3.92%.

George Ratiu, economic research manager at Realtor.com, believes mortgage rates will range between 6% and 7% in the coming weeks.

“For housing markets, the rebound in interest rates means higher mortgage payments than a year ago, but lower than the market peak in summer 2022 as prices have fallen 11% over the past 7 months.” writes Relationship

“The median homebuyer expects to make a monthly payment of $1,985 at today’s exchange rate, up 42% year over year but 6% down from June 2022.”

15-year fixed-rate mortgages

The average 15 years fixed rate also rose to 5.51%. Credit averaged 5.25% last week and 3.15% a year ago.

“The economy is showing signs of resilience, driven largely by consumer spending, and interest rates are rising.” says Sam Khater, Chief Economist at Freddie Mac.

The story goes on

“Overall housing costs are also increasing and therefore affecting inflation, which continues to persist.”

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Mortgage rates could fall below 6% in 2023

Despite a spike in inflation in January, pundits are still hoping for a fall in mortgage rates later this year.

Evangelou expects inflation to ease in the second quarter of the year as rental growth slows. The rental prices make up around 40% of the rental prices consumer price index calculations.

“With a one-year lease being one of the most popular leases, the slowing trend in rental growth could materialize sometime in the second quarter of the year. This could help further cool inflation and stabilize mortgage rates below the 6% threshold this year,” says Evangelou.

“NAR forecasts mortgage rates to average 5.7% in 2023.”

Mortgage applications plunge to their lowest this year

Mortgage demand fell 7.7% from last week – a new low for 2023 – on higher mortgage rates, according to the Mortgage Bankers Association (MBA).

“Prospective buyers remain very sensitive to current levels of mortgage rates, which are more than two percentage points higher than last year and have significantly reduced buyers’ purchasing power,” said Joel Kan, MBA vice president and associate chief economist.

Funding activity was also down 13% this week, down 76% from the same period last year.

“Refinance borrowers … remain on the sidelines as current rates offer little financial incentive to act.”

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