The Balance Today: News You Need To Know on Oct. 19, 2022
Mortgage Demand Drops as Rates Hit 20-Year Highs
Published on October 19, 2022
Part of the reason that the housing market has been so expensive lately is due to a low supply of available homes for all interested buyers to purchase. And that problem won’t be going away anytime soon as the number of new homes being built (known as housing starts) in September was lower than economists expected.
September housing starts dropped by 8.1% compared to August and came in 7.7% lower than the same time last year as high mortgage rates continue to weigh on the housing market. The number of permits to build new homes rose 1.4% from the month prior, but still sits 3.2% lower than September 2021.
And those high prices and rising mortgage rates are hitting demand. Mortgage applications have dropped to their lowest level since 1997 according to the Mortgage Bankers Association as the average rate on a 30-year fixed-rate mortgage reached 6.94% in the week ended Oct. 14, its highest since 2002.
So, when will home prices finally drop? How long will mortgage rates continue to climb? While I don’t have a crystal ball, we do know that as long as inflation remains persistently high, that the Federal Reserve will continue to hike interest rates. This in turn will send mortgage rates even higher—so don’t be shocked if you see mortgage rates to continue to rise.
Even though high mortgage rates are putting pressure on home prices, you shouldn’t expect a “crash” to happen soon, especially with interest in buying a home far outweighing the available supply. In short, it’s a hard time to be a homebuyer.
However, for those in the market for a new home, there may still be some hope. Higher mortgage rates give some leverage to buyers to negotiate lower home prices, and don’t forget that through adjustable-rate mortgages (ARMs) or refinancing your loan, that you could secure a loan for a lower rate.
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