Rising Interest Rates Shake Up the Mortgage Industry

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Interest rates have been rising fast. Given the Fed is tightening its monetary policy, that trend may well continue. The mortgage market is getting hammered as the average rate on a 30-year conforming loan is at 4.9%, vs. just 3.36% a year ago.

The increasing cost of debt is shaking up the housing market, although the combination of low inventory and wage growth has led to general pricing stability. Bidding wars remain the norm, for now.

Mortgage Applications Down 40%

One consequence of the changing economic environment is that fewer homebuyers are looking for a mortgage, and applications to refinance have declined. Demand for these loans has been falling steadily over the last few months as rates rose. Just last week, home purchase mortgage applications were down 3%, despite the fact that spring is typically one of the busiest times of year for home sales.

Refinance demand is off 62% vs. a year ago, and mortgage demand is down over 40%.

American Dream On Hold

The rising cost to finance the purchase of a home is hitting some Americans hard. New homebuyers are getting squeezed out because they either can’t afford the mortgage, or don’t have the ability to compete in bidding wars.

Mortgage companies that boomed in the low-interest rate environment also are now feeling the pinch. In the face of decreasing demand, Movement Mortgage and Better.com are laying off workers. This reverses their initiative to ramp up hiring just a couple of years ago, when interest rates were at historical lows. Generally speaking, some analysts can’t help but wonder how well home prices will hold up, if rates continue to rise.

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