This fall has seen higher interest rates hitting homeowners hoping to refinance their mortgages as well as new homebuyers looking to get into the housing market. According to the Mortgage Bankers Association’s seasonally adjusted index, applications to refinance a mortgage increased by 10% for the week but were 32% lower than they were a year ago. At that time, mortgage interest rates sat at a full percentage point lower.
Fewer borrowers have been able to take advantage of refinancing because they are locked into lower rates from a few years ago. The high interest rates today make it impractical and impossible to refinance, yet many homeowners have financial difficulties with their mortgage.
About 63% of homeowners are delinquent in payments of their mortgage and are not aware that mortgage lenders can offer services to individuals struggling with their payments. Even these services, which often resemble refinancing, may not be a possibility for some. For those who wish to take cash out of their homes, they are more likely to opt for a second home equity loan, rather than losing their low interest rate.
Those looking to buy a home are still showing a strong interest, but the affordability of mortgages has weakened considerably. The first half of this year saw a very short supply of homes for sale, driving prices up. As that situation righted itself and more supply entered the market during the summer, home sales dropped steadily. According to Zillow, the higher home prices and rising rates have caused the monthly payment on the average home to rise 15% higher than it was a year ago. And it’s anticipated that home prices will continue to rise anywhere from 2% to 6% over the next several years.
Builders of new homes are especially feeling this drop in home sales. The industry expected sales to slow as prices rose in the first part of the year, but the rate of sales was well below what they had predicted. Compared with August, sales of newly built home fell 5.5% in September and were 13% lower than they were at this time last year.
Despite an oversupply of construction materials, builders are slowing down on projects. Demand for homes still seems fairly strong among buyers, but affordability and rising mortgage rates have combined to make interested parties wary.
Buyers may avoid investing in a home as long as these prices rise. With the variety of associated costs with moving into a new home and with the unexpected costs, customers are erring on the side of caution. After all, a rule of thumb of moving is to add an extra 25% more moving materials than you think is necessary. If homebuyers aren’t careful during a move, they end up spending more money than they can afford.