New US mortgage applications may have slowed towards the end of 2016 but that does not necessarily mean the housing market is in for a slowdown. Data released from the Mortgage Bankers Association shows that borrowing costs fell from their near highest levels in two years and that means requests for new mortgages have stabilized about 0.1 percent higher than the week before the first day of the year.
This is important because interest rates on 30-year fixed-rate mortgages—which is the most widely held type of home loans in the US—averaged at 4.39 percent. This is down from the average of the week before—at 4.45 percent—and that was its highest from April 2014.
It is most important to recognize that the average for a 30-year, fixed-rate jumbo mortgage increased to this highest-mark-since-April 2014 happened after the November 8 presidential election. As such, MBA chief economist Michael Fratantoni comments, “This is being driven by investor expectations that the U.S. economy is both likely to grow faster and have somewhat higher inflation over the next couple of years. That translates to higher rates.”
Lawrence Yun is the chief economist for the National Association of Realtors. He expects the home loan confirmation rate will hit 4.5% by the end of 2017, adding that he also expects jumbo loans will align, approximately, with these rates. He notes, “Historically, that’s a very favorable rate, but compared to recent times, it is pinching the consumer. The period of ultra-low interest rates is over. We are getting back toward normalization, so this rate increase should not be viewed as alarming.”
Yun also comments that even though home buyers could face higher monthly payments on their mortgage—at the present-day median home price—the typical buyer is only looking at a difference of about $70 per month. The jumbo loans, he says, will pay more, of course, because they are, initially, borrowing more.
He contends, “People are worried about affordability, and in areas where there has been a strong run-up in prices, such as California and some Florida markets, the price increase is hurting affordability. If you add on top of that the higher mortgage rate, people really begin to feel the pinch.”