Mortgage rates are rising to the highest levels in decades, while demand drops to its 25 year low, so here’s what this means for the overall market.
According to Freddie Mac, the average rate on 30-year mortgages has risen above 7%, marking the highest level since 2002.
This comes as no surprise with the Federal Reserve’s aggressive hikes in the past few months.
And as Ross Mac, host of Maconomics, has noted, “hindsight is obviously 20/20, but the time to purchase a house was at the beginning of the year because 30-year rates were around 3% then vs over 7% now. That means rates are the highest they’ve been in 21 years…And as a result, this is causing mortgage demand to drop to the lowest level since 1997. “
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The Federal Reserve still has two meetings on the docket before the end of the year, and analysts expect another 75 basis point hike in November.
Mortgage demand, in response to such high rates, has dropped to its lowest in 25 years according to the Mortgage Bankers Association.
And the weakness is being seen in the new residential sales, with September sales coming in at a seasonally adjusted rate of 603,000.
“This is 10.9 percent below the revised August rate of 677,000 and is 17.6 percent below the September 2021 estimate of 732,000,” according to the U.S. Census Bureau and the Department of Housing and Urban Development’s data for September.
“Because of what will still be limited supply of existing homes – in contrast to new ones – with many wanting to hold on to their 3%ish type mortgage, it will be the number of transactions and everything associated with a move in/out that suffer the most in this housing recession,” Real Money’s Doug Kass referenced Peter Boockver’s work in his Daily Diary earlier this week. “The plus side here is the slowdown and possible price declines in some markets can help to mitigate the 7% sticker shock mortgage for many first-time buyers.”
So while hindsight may be 20/20, those still shopping around for a home may find the overall market to be a mixed bag of higher rates, but lower sticker prices though only time will tell with the Fed’s future plans.
