The cost for would-be homeowners to finance the purchase of a home or existing homeowners to refinance their current home got more expensive as mortgage rates creeped up to a seven-year high, causing mortgage applications to rise in volume by 1.6% last week as applicants scramble to take advantage of current rates before they continue higher.
The rise in mortgage applications was reported by the Mortgage Bankers Association, who also said that refinances comprised the majority of applicant activity with a rise of 4%, which was 39% less versus the same week a year ago. Furthermore, the average contract interest rate for a conforming 30-year fixed-rate mortgage rose to its highest level in more than seven years to 4.88 percent.
“With additional rate hikes on the horizon, mortgage rates will likely only continue to rise and squeeze the market,” said Mike Loewengart, vice president of investment strategy at E-Trade. “Right now there are a ton of positive signals in the economy, but clearly the housing sector is an increasingly glaring exception, and suggests the historic period of expansion we’ve enjoyed for the past decade could be winding down.”
Related: Richmond Fed President Says Rates Must Keep Rising
Housing Affordability Declining
Since hitting a peak in January, the housing affordability index has been on a downward trajectory, which could go even lower as the Federal Reserve is, in fact, primed for more rate hikes for the remainder of the year.
The rate hikes have been paired with a marked increase in real estate prices, which have dampened summer real estate activity where sales and purchase transactions typically experience an uptick. According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), this combination of high prices and interest rates helped to bring down housing affordability to a 10-year low in the second quarter of 2018.
After the financial crisis and subprime mortgage collapse, home prices took an unceremonious fall as millions of homes faced foreclosure and were sold at heavily-discounted prices. Home prices hit a floor around 2012 and began to recover at accelerated levels, pricing out many prospective homebuyers.
The national median home price jumped from $252,000 in the first quarter of 2018 to $265,000 in the second quarter — the highest quarterly median price in the history of the HOI series.
“The recovery in housing has been really slow to get back on track,” said Mark Vitner, managing director and senior economist at Wells Fargo Securities. “The numbers are all moving in the right direction, but they’re not moving there very quickly and I don’t think that’s going to change all that much.”
For more real estate trends, visit ETFTrends.com