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Mortgage Interest Rates Continue To Increase

Good Monday Morning!

Inflation rates continue to rise and mortgage interest rates continue to increase as a result. This is a situation that I warned everyone about over a year ago, when inflation began to creep in on us. Now with high inflation we also have higher mortgage interest rates. The problem is two fold, mortgage interest rates have gone up far too quickly and have not given consumers or the economy any time to adjiust. The second issue is that the inventory of homes for sale remains historically low and this has put the brakes on home prices declining to help home buyers be able to afford a home purchase. Typically in a situation where mortgage rates increase, home values decline accordingly and the market adjusts. The reluctance of homeowners to give up their 2.5% and 3% mortgage rates is not going to change any time soon. What is really going to control our housing market over the next year and beyond is going to be the inflation rate. Here is an article from "Realtor.com" that talks about the current national housing market.

The numbers: U.S. pending-home sales fell 10.2% in September, which is the fourth straight monthly drop, according to the monthly index released Friday by the National Association of Realtors (NAR).

The decline was much larger that forecast. Analysts polled by the Wall Street Journal had forecast the pending home sales index to drop by 4%.

Outside of the pandemic, the drop in pending home sales is the largest year-over-year decline since 2001. Sales dropped by 33.1% in April 2020.

Contract signings fell by double-digits in all regions across the country.

Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed.

Economists view it as an indicator for the direction of existing-home sales in subsequent months.

The fall in pending sales is preceded by a drop in mortgage application activity, which fell in the latest week.

Key details: Compared with a year earlier, transactions were down by 31%.

Pending sales fell all four major U.S. regions, led by the Northeast, which saw a 16.2% drop from last month, followed by the West, with a 11.7% drop, the Midwest, with a 8.8% drop, and the South, where sales fell 8.1%

This is the tenth time pending home sales have fallen in the last 11 months.

Big picture: The housing market has stalled.

With rates above 7%, buyers aren’t biting, and sellers are having a hard time attracting bids.

Sales have dropped so much that it’s dragged down economic activity in the second quarter.

Sellers also not keen to give up their rock-bottom interest rates, the NAR noted, which means new supply isn’t hitting the market, which then keeps prices up.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners—93%—have rates less than 6%.

What the realtors said: “Persistent inflation has proven quite harmful to the housing market,” said Lawrence Yun, chief economist at NAR.

With the Federal Reserve hiking interest rates to address inflation, the housing market finds itself with “far fewer buyers and even fewer sellers,” he added.

Though mortgage rates are high, “the new normal for mortgage rates could be around 7% for a while,” Yun stated.

With rates doubling from a year ago, on a $300,000 mortgage, mortgage borrowers are paying an additional $700 a month or more today, Yun said.

“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” he added.

What are they saying?

“Contract signings for existing homes dropped 10.2% in September, to the lowest level since June 2010, with sharp declines across all geographic regions,” George Ratiu, senior economist and manager of economic research at Realtor.com said in a statement. 

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

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