- SUMMARY
Mortgage applications have surprisingly increased despite rising interest rates.
Normally, higher rates deter home buying, but a closer examination reveals a more complex picture.
Historically, mortgage rates and application volumes have exhibited a strong inverse relationship.
However, the recent surge in mortgage applications seems to defy this trend.
This suggests that the impact of rising interest rates on the housing market is not always straightforward.
Some experts believe that the uptick in mortgage applications is due to the “noise” in the data, meaning short-term fluctuations that may not reflect the overall trend.
However, a long-term view paints a different picture.
Mortgage applications have plummeted in the “refinancing” market, where homeowners seek lower interest rates on existing mortgages.
Rising rates have made refinancing less attractive, leaving fewer people in this segment.
On the “purchase” side, where people apply for mortgages to buy homes, the situation is mixed.
While applications have declined from the highs of last year, they have stabilized at a level that is significantly higher than pre-pandemic levels.
This indicates that the demand for housing remains strong, particularly among those who need to move and are less sensitive to interest rate changes.
Nevertheless, the high cost of borrowing has slowed down the pace of home transactions.
The question remains: at what point do interest rates become so high that they crush the mortgage market?
Experts believe that we may already be at or near that point.
The current 7.5% rate has significantly reduced demand, leaving few options for further declines.
However, housing prices have remained relatively stable, largely due to a lack of available homes for sale.
Additionally, the absence of a mortgage meltdown, unlike in 2007-2008, has contributed to the stability in housing prices.
As for the future of interest rates, experts forecast a range of 8% on the high end and a potential drop back down to 5% or even lower in the future, depending on the trajectory of inflation and the overall economic outlook.
- Key Takeaways
Rising interest rates do not always deter home buying.
Mortgage applications have surprisingly increased despite rising rates, suggesting that other factors are also influencing buying decisions.
The impact of interest rates on the housing market varies between the refinancing and purchase markets.
Refinancing applications have plummeted due to rising rates, while purchase applications remain elevated, indicating strong demand for housing among buyers who are less sensitive to interest rate changes.
Current interest rates may be approaching the point where they significantly reduce demand for mortgages.
The current 7.5% rate has already slowed down the pace of home transactions, and experts believe that further increases could crush the mortgage market.