How Mortgage Rates Are Impacting Buyers And Mortgage Refinancing: 6 Things To Know

How Mortgage Rates Are Impacting Buyers And Mortgage Refinancing: 6 Things To Know

mortgage rates

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By the fall of 2008, homeowners were defaulting on subprime mortgages en masse, causing havoc in financial markets leading to the collapse of the stock market and a global recession.

Saddled with mortgages they couldn’t afford, more than 6 million U.S. households lost their homes to foreclosure in the carnage.

Economists and financial analysts, in hindsight, were accused of failing to foresee the housing bubble and warn of its collapse.

Housing market predictions are about as reliable as a weather forecast.

The U.S. housing market in 2021 was like a runaway train, driven by low interest rates and low supply during the pandemic. Some experts predict that home sales will stay strong in 2022, interest rates will go up, and home prices will continue to rise. Others say the market is showing signs of stress.

Online real estate platform Zillow found that Black applicants were denied a mortgage at an 84 percent higher rate than white applicants in 2020 — up 10 percent since 2019 — according to a recent analysis of Home Mortgage Disclosure Act data.

How are mortgage rates impacting buyers and mortgage refinancing? Here are five things to know.

1. Homebuyers this year face biggest payment shock in 40-plus years

People looking to buy a home this year “are going to be facing the biggest payment shock that we’ve seen in the last 40-plus years”, said Rick Palacios, director of research at John Burns Real Estate Consulting.

Average interest rates for a 30-year fixed-rate mortgage in the U.S. rose from a record low 2.65 percent in January 2021 to 4.67 percent, according to the latest (March 31) Freddie Mac weekly survey. A week prior, on March 24, that rate was 4.42 percent. Three weeks prior to that, on March 3, the rate was 3.76 percent.

Average monthly payments on new mortgages jumped 25 percent in February compared with 2021, and accounted for a larger share of the typical person’s income, according to a new report from the Mortgage Bankers Association.

Higher payments are “quickly affecting homebuyers’ ability to keep up with the market”, said Sam Khater, Freddie Mac’s chief economist.

2. Mortgage refinance demand is down 60 percent

Refinance applications fell 15 percent in a single week in late March and were down 60 percent from a year ago. Borrowers who refinanced their first lien mortgages in the first half of 2021 lowered their mortgage rate by more than 1.2 percentage points on average.

3. Mortgage applications are down but cash buyers remain strong

Mortgage applications are down 10 percent compared to the same week a year ago according to the Mortgage Bankers Association seasonally adjusted index, CNBC reported on March 30. Affordability is a growing problem with home prices continuing to skyrocket, supply at record lows and rising mortgage rates.

Some real estate agents say the competition is still strong — among cash buyers.

“I have had more cash buyers this year than I’ve ever had, and they’re borrowing from parents. They’re just finding that cash because they know that it’s more competitive with cash offers,” said Kelly Theriot McMahon, a Compass Realtor in Dallas.

4. Interest rates could go up to 6 percent

There’s a good chance mortgage interest rates will top out “before hitting 6 percent,” said Matthew Graham, chief operating officer at Mortgage News Daily. “It is a rapidly moving target in this environment, where we legitimately and unexpectedly find ourselves needing to be concerned with inflation for the first time since the 1980s.”

5. If you have to borrow, it will keep getting harder to buy a home

Don’t hold your breath that mortgage rates will come down in 2022. None of the six real estate experts interviewed by The Mortgage Reports said they expect home prices to fall in 2022. The platform started as a blog by a loan officer and covers mortgage and real estate news.

If you are in a position to buy, buy sooner rather than later, these experts said, because the supply and demand imbalance isn’t going away anytime soon.

Low inventory “is here to stay for a while,” said Tabitha Mazzara, director of operations for Mortgage Bank of California.

“Millennials, the largest demographic in history, will turn 33 this year — the peak age when most buyers purchase their first home,” said Bruce Ailion, a Realtor and real estate attorney.

Rising mortgage interest rates were expected to cool the demand for homes and push home prices down due to the higher cost of financing, but market watchers are seeing the opposite.

“Price appreciation has accelerated at the beginning of 2022, mainly due to the fear that rates will continue to rise,” according to Sean Casey, senior vice president and regional sales manager of Angel Oak Home Loans.

6. Help for Black borrowers

Black homeownership rates increased from 40.6 percent in the second quarter of 2019 to 44 percent in 2020 but they remain below the peak in 2004, when 49.7 percent of Black people owned a home.

Some financial institutions have introduced new programs to raise homeownership for Black people, such as assistance for down payments and closing costs, the Washington Post reported.

Fannie Mae and Freddie Mac now allow rent payments to count toward credit history, which could increase mortgage accessibility for new home buyers.

READ MORE: New Data From Federal Reserve: The Cost Of Buying A Home In Atlanta Is Now Unaffordable

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