Mortgage demand falls to its lowest level in 2023 as rates rise for a second week, but experts predict lower rental prices will eventually push rates below 6%.

'Signs of resilience': Mortgage demand falls to 2023 lows as rates rise for second week, but experts predict lower rental prices will eventually push rates below 6%.

‘Signs of resilience’: Mortgage demand falls to 2023 lows as rates rise for second week, but experts predict lower rental prices will eventually push rates below 6%.

US mortgage rates are rising for the second week in a row after reports that the economy has created a staggering 517,000 jobs and inflation rose 0.5% in January.

“At these rates, Americans need to make at least 18% upfront when buying a home at an average price if they don’t want to be saddled with costs,” says Nadia Evangelou, senior economist at the National Association of Realtors (NAR). ).

While demand has weakened due to higher rates, the average 30-year mortgage loan could approach the 6% mark during the spring home buying season, and buyers will return to the market again.

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30-year fixed-rate mortgage

The average 30-year fixed rate rose from 6.12% to 6.32%. A year ago at this time, the figure averaged 3.92%.

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

“For housing markets, the recovery in rates means higher mortgage payments compared to last year, but lower than the market’s peak in summer 2022, as prices fell 11% over the past 7 months,” writes Ratiu.

“The average price home buyer is looking for a monthly payment of $1,985 at today’s exchange rate, up 42% from last year but 6% down from June 2022.”

15-year fixed rate mortgage

The average 15-year fixed rate also rose to 5.51%. Last week credit averaged 5.25% and this time a year ago it averaged 3.15%.

“The economy is showing signs of resilience, driven largely by consumer spending, and rates are rising,” said Sam Hater, chief economist at Freddie Mac.

“Total housing costs are also on the rise and therefore impact on inflation, which continues to persist.”

Read more: UBS reports that 61% of millionaire collectors allocate up to 30% of their total portfolio to this exclusive asset class.

Mortgage rates could fall below 6% in 2023

Despite the increase in inflation in January, experts still hope for a reduction in mortgage rates at the end of this year.

Evangelou believes inflation will ease in the second quarter of the year as rent growth slows. Rental prices account for about 40% of CPI calculations.

“Because annual rentals are among the most popular, a slowdown trend in rent growth could emerge sometime in the second quarter of the year. This could help bring inflation down even further and stabilize mortgage rates below the 6% threshold this year,” says Evangelou.

“NAR predicts mortgage rates will average 5.7% in 2023.”

Mortgage applications fall to lowest level this year

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

“Potential buyers remain highly sensitive to the current level of mortgage rates, which are more than two percentage points higher than last year and have significantly reduced the purchasing power of buyers,” said Joel Kahn, MBA vice president and deputy chief economist.

Refinancing activity is also down 13% this week and down 76% year-over-year.

“Refinance borrowers… are on the sidelines as current rates provide no financial incentive to act.”

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This article provides information only and should not be construed as advice. It is provided without any warranty.

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