Mortgage applications rise as rates continue to fall

Potential homebuyers are waiting for more affordable conditions, and they may be ready to start making offers, according to data from the Mortgage Bankers Association. mortgage demand increased by 7% in the week ending January 20 after skyrocketing nearly 28% in the previous week. While there have been variations in mortgage demand, often following fluctuations in the federal funds rate, the 28% increase in mortgage application volume since the first week of March 2020 has not occurred.

During this, inventory is not increasing to keep pace. homebuyer sentiment slightly improved In December. Inflation is coming down faster than some recent expectations, and a rising band Many economists are betting that the Fed will make a soft landing. Did we manage to avoid a housing market crash, and is the housing market already making a comeback?

Mortgage demand growing surprisingly fast

While fluctuations in demand are common, the 27.9% jump in mortgage applications during the week ending January 13 was the highest recorded since the start of the home buying boom in 2020. Refinancing activity made a particularly strong return, up 34% from the week before, while home purchase applications rose 25%.

In the week ending January 20, refinance applications increased by a further 14.6%, while home purchase applications increased by 3.4%.

However, mortgage activity today is still muted compared to a year ago. Refinance demand in the week ending January 13 was 81% less Compared to the previous year, home purchase applications were down by 35% compared to the previous year. The average 30-year fixed mortgage rate at the time was only 3.64%.

While mortgage rates are still higher than ever in a decade, they have come down significantly from the peak of 7.08% in November. The average mortgage rate for a 30-year fixed-rate home loan now sits at 6.13% After a steady decline over the past three weeks. Meanwhile, there are more sellers making concessions and accepting less demanding offers. While conditions may not be ideal for buyers, they are becoming more favourable. This is leading to a spurt in demand at a time when inventory is still low.

uncertainty remains

while mortgage rates Forecast for 2023 varies from firm to firm, december inflation data suggest the Fed’s efforts are working. For example, the prices of used vehicles, which fueled inflation in previous years, have started coming down. It is possible that mortgage rates could decrease further in 2023 if the decline in the Consumer Price Index continues. On the other hand there is a fight against rising prices far from over, Services inflation has been rising month-on-month. The Fed has indicated it will continue to raise rates, although a slower increase of 25 basis points is expected.

There is reason to be optimistic that the Fed will control inflation without a recession. Unemployment despite reports of layoffs in the tech sector short lived, and there are more job opportunities than unemployed Americans – even as rate hikes are causing economic activity to contract and inflation to slow. some economists are now Hope A milder downturn than they originally predicted.

But the pandemic has managed to hit parts of the economy and disrupt supply chains. And the Fed has a long way to go before reaching its target inflation rate. Higher interest rates may start affecting employment, cause a recession and reduce demand from home buyers.

Is the Housing Market Making a Comeback?

Some cities may be ready to rebound sooner than others because home prices in some post-pandemic boomtowns have already fallen from a year ago. The housing recovery is well underway in cities like Austin and San Francisco, which means a price turnaround could happen soon, as buyer demand picks up again. redfin Economics Research Head Chen Zhao. But it is too early to tell whether most markets will pick up this year. There can be many buyers and sellers Waiting to see where the prices landBy blocking new inventory and reducing demand.

Even if there is a rebound in home buying activity across the country in 2023, it is unlikely to parallel the home buying boom of 2021. Interest rates are likely to remain relatively high. At a time when mortgage affordability is a concern for potential homebuyers, the economic fears are palpable. Worries about job losses could dampen demand for homes, even if unemployment remains low. Homebuyer sentiment, while rising, remains well below 2021 levels.

With so much uncertainty, it’s even more important for investors to track weekly metrics on housing demand, such as weekly data about mortgage applications from the Mortgage Bankers Association. The housing market may not be making a comeback just yet, but tracking mortgage application activity can help you make an informed decision about the best time to buy.

Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.