Bull Session | U.S. mortgage rates are approaching 5%, would you buy a house now?

Chatterbox Moo wrote a column · Apr 9, 2022 18:01

U.S. mortgage rates are rapidly growing, and Americans have to pay more and more for home loans.

According to the $FREDDIE MAC (FMCC.US)$, the Federal Home Loan Mortgage Corporation, the average rate for a 30-year fixed home loan edged up to 4.72% from last week's 4.67%, hitting the highest point since December 2018.

Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994.
The increase in mortgage rates has softened purchase activity such that the monthly payment for those looking to buy a home has risen by at least 20 percent from a year ago."
--- Freddie mac

Source: Yahoo Finance

Why does the rates keep going up?

Fixed mortgage rates are tied to the benchmark 10-year Treasury note, which jumped to 2.7% this week. The notes rate reached the highest level since March 2019, and the investors still expect the rates to go higher based on current economic conditions and Fed policy.

The minutes of the Fed March meeting show that policymakers had considered raising interest rates and reducing the balance sheet sooner in May, which likely would push the 10-year Treasury yield higher.

What is happening in the housing market?

Higher rates are cooling off the hot housing market.

On the buyer side, fewer people are willing to buy the house since the loan is getting more expensive.

The monthly payment on a median-priced home today is nearly $500 higher than just one year ago, a 40% jump. The increase in the cost of financing a home is outgunning the 8% yearly rate of inflation, the 15% rise in home prices, and the 17% advance in rents."
--- said George Ratiu, Realtor.com's manager of economic research.

The existing home sales declined 7.2% in February, and the volume of mortgage applications to purchase a home slipped 3% in a week, according to the Mortgage Bankers Association.

For many American families, today's mortgage rates are closing the door on being able to afford to buy a home this spring."
--- George Ratiu added.

On the seller side, they left the market as well since the cost of refinance is getting higher.

The volume of refinance applications dropped 10% from the previous week, according to MBA, and is 62% lower than a year ago. Homeowners have less incentive to refinance since the current rates are higher than their previous rates.

Existing homeowners — who make up about 40% of home sales — may be reluctant to sell because they feel the so-called 'lock-in' effect."
--- BofA Global Research note.

What will happen next?

The mortgage rates will continue to surge along with the rising interest rates. It will eventually suppress the demand of the housing market, as monthly payments from buyers keep inching up. However, any decline in interested buyers is likely several months away, said Lawrence Yun, chief economist for the National Association of Realtors.

The buyers who are in the game, they believe rising interest rates could be the last chance to get in.”
--- he said.

Mr. Yun estimates the rise in rates may lead to a 10% decline in home sales from last year, but the diminishing supply of the houses means the house prices may not go down.

So mooers, what do you think?

Source: Freddie mac, Yahoo Finance, WSJ

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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