Record home prices and rising mortgage interest rates are putting downward pressure on the housing market, as the total number of new mortgage applications fell 6.3% last week.
In the Mortgage Bankers Association (MBA) Seasonally adjusted mortgage index released on Wednesday, the total number of mortgage applications fell due to rising rates and high home prices listed for today.
Mortgage refinancing requests, considered the most sensitive to changes in interest rates, fell 7%. This week’s numbers are 22% lower than the same period last year.
The US real estate market has been grappling with a supply-demand dilemma since the start of the COVID-19 pandemic with too little inventory on hand to meet voracious demand.
The pandemic has exacerbated much of this situation, although it is not entirely to blame. As the virus has spread across the world, it has resulted in plant closures as well as shipyards and other nodes in global supply chains. This pushed the price of building materials upward, which contributed to the rise in house prices and slowing construction rates.
The shortage of manpower is also to blame. Construction companies are grappling with vacancies that they have been shown to be unable to fill enough, a trend that was emerging even before the start of the pandemic. This is another factor that has caused house prices to rise.
Sentiment in the residential construction market is currently bullish because homes are selling at higher values, but this is fraught with caveats. For any glee over home prices, there are also lingering concerns about whether the shortage of affordable housing will ease anytime soon as many first-time buyers delay their purchases.
Other changes in interest rates are also on the horizon as the Federal Reserve is due to meet on November 2. The Fed has signaled that it is ready to cut its monthly multibillion-dollar asset purchase program to curb inflation, but has discouraged the idea of ââraising interest rates by the end. from 2021.