With mortgage rates recently back up over 7%, despair is setting in. The new average rate for the immensely popular 30-year fixed loan is at 7.04%, per Mortgage News Daily. Recent decisions by Moody’s to downgrade the U.S. credit rating are sending a huge shockwave throughout the housing market. This has had an enormous effect on buyer sentiment.
The 30-year fixed mortgage rate jumped to its highest level since April 11th. This represents an important sea-change from the days of relative calm. Prior to this increase, mortgage rates had held steady for about three weeks. This led a number of buyers to cautiously dip their toes back into the market. That recent rebound in rates seems to be having an undeniable cooling effect on would-be homebuyers.
Matthew Graham, chief operating officer at Mortgage News Daily, explained that lenders are facing challenges due to rapid market fluctuations.
“The average mortgage lender had to account not only for the market movement in Friday’s closing minutes, but also to the additional weakness seen this morning. That makes for a fairly big jump, day-over-day, but it does very little to change the bigger picture,” – Matthew Graham, chief operating officer at Mortgage News Daily.
Combined with the highest mortgage rates in decades, buyer activity has been severely affected. In fact, we are already witnessing a pronounced housing market retreat. Pending sales of existing homes were down 3.2% in April year-over-year. This is data that we have obtained from Realtor.com. Yet homebuilders faced a steep decline in demand during that timeframe. This is a clear picture of just how effectively rising rates have crunched the market.
Trippy as these challenges may be, homebuyers in the early part of May returned to purchase-mortgage demand with a vengeance. Note that this spike up happened with rates fluctuating around 6.9%. This temporary spike demonstrates that in a buyer’s market, buyers are still responsive to good news. While high rates may discourage them, they are poised to pounce when conditions are favorable.
As the Mortgage Bankers Association pointed out, this resurgence occurred before the new peak above 7% last week. This is an important reminder of the narrow tightrope that the housing market is walking. These ups and downs have left average proprietary mortgage lenders scrambling to keep up with changing market conditions and re-orient their focus.
At 7%, the increase in mortgage rates this past April was particularly jarring for many prospective buyers. Homebuyers were forced to reconsider their buying preferences with the increasing costs of borrowing. As the industry continues to navigate these challenges, stakeholders are closely monitoring how these shifts will shape future demand and pricing trends.