The end of 2022 was not kind to residential real estate investors or those whose agencies sell and finance homes. Not only did mortgage interest rates climb again at the end of December, but applications were down by double digits, according to the Mortgage Bankers Association (MBA).
The average interest rate for 30-year fixed mortgages for loans with a 20% down payment increased to 6.58% from 6.34% two weeks before. For reference, the rate was 3.33% at the end of 2021. Meanwhile, mortgage applications were down 13.2% at the end of 2022 compared to two weeks earlier. To add to the negative news, the demand for refinancing dropped 16.3% from two weeks earlier and 87% from the same period in 2021.
“Mortgage rates are lower than October 2022 highs but would have to decline substantially to generate additional refinance activity,” said MBA economist Joel Kan. “Purchase applications have been impacted by slowing home sales in both the new and existing segments of the market. Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective homebuyers out of the market.”
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Realtor.com predicts mortgage rate increases will continue into 2023 and will hover around 7.1% by the end of the year. Straining to find any good news at all, Realtor.com added, “Remember, that’s lower than the 7.76% average rate seen in 30-year mortgages since 1971.”
Erika Giovanetti, a US News & World Report reporter, said that based on lessons learned in the late 1970s, home prices may retain their values longer than some predicted earlier in the year.
“When mortgage rates rose rapidly during the late ’70s and early ’80s, home price appreciation decelerated, but growth remained positive. Home prices did not fall until shortly after when a recession was underway,” she wrote. “So if the Federal Reserve can manage to stick to a soft landing — that is, by tempering inflation without driving the US economy into a recession — then higher home prices may be here to stay.”
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