Mortgage rates in the United States have hit the highest level in six months while loan applications and home sales are declining.
The average 30-year fixed-rate mortgage rate hit 7.12 percent on May 25, according to a May 25 post by Mortgage Daily News (MDN). The previous high of 7.10 percent was hit on March 2. This is also the highest rate since Nov. 9, 2022. Over the past year, the mortgage rate has jumped from 5.36 percent to 7.12 percent, once more putting downward pressure on the volume of mortgage applications.
According to the Mortgage Bankers Association (MBA), loan application volume fell by 4.6 percent for the week ending May 19 from the previous week. MBA Vice President Joel Kan blames the decline on borrowers remaining “sensitive to higher rates,” according to a May 24 news release.
“Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months and more than 40 percent below last year’s pace.”
The surge in rates and decline in mortgage applications are happening amid disappointing home sale numbers. According to the National Association of Realtors (NAR), existing-home sales slid 3.4 percent from March to 4.28 million units in April. On a year-over-year basis, sales were down by 23.2 percent.
Meanwhile, the Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, remained unchanged at 78.9 in April. Year-over-year transactions fell by 20.3 percent.
“Affordability challenges certainly remain and continue to hold back contract signings, but a sizeable increase in housing inventory will be critical to get more Americans moving,” said NAR Chief Economist Lawrence Yun, according to a May 25 press release.
Higher Mortgage Payments
Housing payments hit a new high this week due to the rise in mortgage rates, according to real estate brokerage Redfin. The current weekly average mortgage rate is 6.57 percent, which brings the monthly mortgage rate to a record-high of $2,614, Redfin said in a May 25 press release.
Potential sellers are backing away from the market as homeowners want to hold on to the lower rates on their existing homes, it said. As a result, new listings of homes for sale have dropped by 24 percent, which is one of the biggest declines since May 2020.
Recent developments have put people looking to buy affordable homes in a tough spot. “Rates hitting 7 percent is pushing some homebuyers entirely out of the market, especially those with lower budgets. But a lot of them are just pushing their price range down,” said Bliss Ong, a Redfin Premier agent who works mainly in the city of Seattle.
Heather Kruayai, a Redfin Premier agent from Jacksonville, Florida, pointed out that while expensive listings are getting sold quickly, it is the affordable listings that are going “stale.”
“That’s usually because those buyers can lessen the impact of high rates by making huge down payments or paying in all cash,” she said about people who are buying expensive homes.
“Other than cash buyers moving in from out of town, the only people buying and selling are the people who need to because they’re retiring or going through another major life change.”
Expensive Mortgage Payments
High mortgage rates have made mortgage payments more expensive than rents in some places per a Redfin report. California accounted for seven of the top 10 cities where mortgage payments exceeded rental prices, with places like San Jose, San Francisco, Oakland, Anaheim, Los Angeles, San Diego, and Sacramento taking the spots.
A home mortgage in San Jose was found to be 2.65 times the cost of renting, the biggest such gap among the 50 cities in the analysis. The median monthly mortgage in San Jose came to $11,049 compared to the median monthly rent of $4,176.
In San Francisco, mortgages were 2.39 times the cost of renting. In Oakland, mortgages were 99 percent higher while in Anaheim, mortgages were 91 percent higher.
“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity,” said Redfin Deputy Chief Economist Taylor Marr. “But buying isn’t a feasible option for everyone.”
