Stay up-to date with the latest news in Real Estate Development.
Mortgage demand declines once more following a 21-year high in FHA loan interest
Last week saw mortgage interest rates rise dramatically. The government’s low down payment option reached its highest in 21 years, causing a 3.1% decline in mortgage applications compared to the prior week, as per Mortgage Bankers Association. 30-year fixed-rate mortgages' average rate increased to 7.09% for loans with conforming balances and a 20% down payment. Jumbo loans reached 7.04%. Federal Housing Administration loans, popular among first-time or lower-income borrowers, surged to 7.02%, a peak since 2002. Joel Kan of MBA attributed the rise to Treasury yields' increase and the U.S. government debt rating downgrade. Home purchase applications fell 3% weekly and 27% annually. High rates are deterring potential moves as existing homeowners, typically paying 3%-4% interest, avoid higher rates on a new property. Refinancing applications decreased 4% weekly and 37% yearly. Current rates remain above 7%, with potential fluctuations following the upcoming monthly inflation report.
A decade-low in terms of mortgage loan availability
July saw mortgage qualifications at their toughest in a decade, says the Mortgage Bankers Association. The index reflecting credit availability plummeted to its lowest since 2013, signaling stricter lending standards. Particularly, jumbo loans suffered as banks grapple with liquidity concerns; these loans aren’t sold to Fannie Mae or Freddie Mac, typically staying on bank ledgers. Due to rising rates, home loan demand dipped, with 26% fewer applications for purchases and 32% less for refinancing annually, per MBA's report. Joel Kan from MBA linked declining origination volumes to decreased lender profitability, leading to a restricted loan spectrum to cut costs. Key factors include a slump in cash-out refinance programs and the average 30-year mortgage rate's spike to around 7%. Instead of swapping a 3% rate for a 7% one, borrowers now lean towards home equity lines of credit.
Due to recent price records, you might have the following amount of money at home
After dropping last year, U.S. home prices have surged. As of June, 60% of markets hit record prices, says Black Knight's report. The national home price index rose 0.8% annually in June, outpacing May's growth. Supply shortages and reluctance to accept higher mortgage rates by current homeowners have pushed prices up, restoring home equity levels close to last year's peak. Total equity exceeded $16 trillion, and tappable equity approached $10.5 trillion—around $200,000 per homeowner. Only 344,000 homeowners have negative equity, though it's a 70% rise from last year. However, Andy Walden of Black Knight points out this number is far lower than pre-pandemic 2019. Home affordability is at a 37-year nadir. Existing homeowners spend 21% of median income on mortgages, whereas new buyers might spend 36% due to elevated prices and a 7.2% 30-year fixed mortgage rate—double that of two years prior. Walden attributes the present 16-year low in serious mortgage delinquencies to these dynamics.
The housing market in the United States is losing foreign purchasers. This is why.
International buyers are retreating from the U.S. housing market due to high mortgage rates, skyrocketing prices, limited home supply, and a robust dollar. Between April last year and March, they acquired about 84,600 homes, a 14% year-over-year decline and the lowest since 2009. Even so, these homes' median price was a record $396,400. Top countries for buyers were China, Mexico, Canada, India, and Colombia. Chinese purchases surged, with an average price of $1.23 million; many favored California. According to Juwai IQI, most Chinese buyers in 2023 aim for U.S. residency. Popular states for foreign buyers include Florida, California, and Texas. About 42% made cash purchases; half bought homes for vacation or rental purposes. Though international sales dipped, they only represent over 2% of total buyers, so domestic competition remains intense, exacerbated by low home supply and doubled mortgage rates since the pandemic's start.
