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Even Higher Rates Can’t Cool a Blazing American Real Estate Market

It seems the real estate market is hot, and even steadily rising interest rates can’t cool it off. While there has been a slight dip in rates, the medium- and long-term numbers show that people are clamoring for homes even when the general trend is towards higher interest, which usually dampens home-buying activity.

Higher Rates Can’t Cool the Red-Hot Real Estate Market

Real estate and mortgage statistics can come from a wide variety of sources ranging from trustworthy and respected to flimsy and doubtful. While there are numerous information resources, one of the best, at least for loan information, is the Mortgage Bankers Association (MBA). Every week, they offer a press release that highlights the latest numbers for mortgages, including purchase and refinance mortgages.

According to their latest release (as of writing this article, from April 21st), overall mortgage applications have increased over 8% from the previous week, a strong sign that steadily-rising interest rates are not slowing a high-demand real estate market.

According to their Market Composite Index, which measures the total volume of mortgage applications, there was a seasonally-adjusted increase of 8.6%; if the numbers are unadjusted, there is an increase of 9% from the previous week.

The refinance increase is even larger. Refinancing, which had seen a bit of a decline, increased 10% from the previous week. However, compared to this time last year, refinancing was down 23%. This is not surprising to industry professionals; last year at this time, we were roughly a couple months into the COVID-19 pandemic. By late April of 2020, businesses were shut down, students were sent home, and real estate purchases slowed significantly. However, current owners saw low interest rates and realized they had an excellent opportunity to refinance to a reduced interest, saving potentially hundreds of dollars every month. So as the weeks go by throughout 2021, you can expect refinance numbers to be extremely low compared to 2020. This does not necessarily mean that 2021 is a down year for refinancing, it simply shows that 2020 was a big year for reworking a mortgage.

While mortgage rates have steadily risen over the past few months, the recent data from the MBA shows that there was a short-term decline in average interest. Quoting an industry and forecasting expert, the report says that mortgage rates have dipped to the lowest levels in roughly two months, which is a major reason for the regrowth of numbers after refinancing had been on a progressive decline for six weeks. Borrowers took advantage of the dip in mortgage rates for both conventional and government-supported refinance.

For purchases, the gains were positive although not as high as refinancing. The adjusted purchase index was up 7% from the week before, and it was up 57% from the same week a year ago.

There are two numbers to consider. For the 7% weekly gain, much of the activity can be attributed to the decrease in rates, which encourages market activity, as well as the ongoing spring buying season, which often gains momentum during April and May.

For the 57% increase compared to this week last year, the causes seem fairly obvious. Last year, few people were seeking to purchase a new home. With countless unknowns and no vaccine in sight, fewer people were wanting to shop for houses. With returns to “normal,” it seems obvious that the annual comparisons will be higher. Like refinancing decreases compared to last year, purchase-mortgage increases can be attributed more to last’s year’s craziness than this year’s steadiness. (Although both, certainly, should be considered.)

Even steadily-rising interest rates can cool a red-hot real estate market.

What Do Rising Interest Rates Really Mean to the Real Estate Market?

Overall, rising interest rates are a sign that the market is recovering. While we have seen a weekly short-term dip, the overall trend in interest rates is steadily upward. Rising interest rates are usually a sign of a strong economy, so while homebuyers don’t like it, you can take comfort knowing that higher interest rates usually go hand-in-glove with a better job market and higher stocks.

Inventory, Not Mortgage Rates, Is a Major Concern

Overall, mortgage interest rates are rising, which on its face could be a concern for people in the real estate market and mortgage industries. After all, if mortgage rates go high, demand for new homes and refinancing could be slowed significantly. But interest rates are actually not a major concern for most people in the industry.

A larger concern is inventory. Or, more accurately, a lack of inventory.

Currently, there is a significant lack of inventory for the American real estate market, which has an impact on virtually every other market factor, especially home prices. Because there are fewer homes on the market, home buyers find themselves in significant competition for the limited houses that are available. Making initial offers well above asking price is common. So too is sight-unseen purchases and offers with no contingencies or inspections. This is a risky (and expensive) way to purchase a home, but in many markets it’s the only way to buy.

There are a variety of reasons for the current lack of inventory, but last year’s refinancing surely play a role. If someone refinanced last year, they are far less likely to place their home on the market. (Why refinance if you plan to sell in a year?) Therefore, last year’s refinancing boom likely took thousands, possibly tens of thousands, of homes off the market.

Generally, new home are seen as an outlet for inventory pressure. (Not enough homes? Build more!) However, a short supply, as well as the high price of building materials is also a concern. These prices have made new homes more expensive, pinching an already tight housing inventory.

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If you are looking for excellent service on your next mortgage application, contact the team and Home & Mortgage today.

We are ready to help you find the right loan for your needs, so whether you are a seasoned property investor or need help finding the perfect mortgage for your first home, we are here for you!


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Chad Baker, CrossCountry Mortgage   
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