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Climbing mortgage rates dissuading shoppers?

February 23, 2018

For several months, mortgage rates have been rising slowly but surely, without having much of an effect on consumers' interest in getting into the housing market. Generally speaking, demand was still too strong for young shoppers in particular to be dissuaded from buying just because rates had ticked up a few basis points. However, all those increases seem to have reached something of a critical mass in recent weeks, resulting in sharper declines in mortgage activity.

"Mortgage applications slipped 6.6%."

For instance, in the week ending Feb. 16, the national volume of mortgage applications filed with lenders slipped 6.6 percent from the previous week on a seasonally adjusted basis, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. This decline was driven by both a 6 percent drop in purchase applications, as well as a 7 percent slide for refinances. However, despite those steps back, purchase request activity was still up 3 percent on an annual basis, showing just how strong the market has grown.

Changing affordability
These changes came as rates on 30-year fixed-rate mortgages - most often used in home purchases - increased to 4.64 percent over the course of the week, up from the previous 4.57 percent, the report said. That was the highest level seen in the market since January 2014. Meanwhile, rates on 15-year FRMs - typically used to facilitate refinances - rose to 4.02 percent from 4 percent, hitting the highest mark observed since April 2011.

However, housing experts are hardly surprised by these revelations, according to the Sacramento Bee. Mortgage rates were so low for so long, often despite decisions by the Federal Reserve Board to increase benchmark interest rates, that there was simply going to be a point at which rates had to start rising more rapidly. In doing so, start pricing more would-be buyers and current homeowners out of being able to afford a refinance for the time being.

"I would say this has been a long time coming," Dan Starelli, head of a mortgage lender in Sacramento, told the newspaper. "We've had interest rates dropping for decades. I think we hit bottom. I don't think we'll see rates in the 3s again. It was very artificial. Now we're getting into a more realistic market, which is healthy overall."

Getting into the market
Experts also point out that it's important for consumers to keep in mind just how rising rates will affect them going forward, according to NerdWallet. While an increase from 4 percent to 4.5 percent is sizable, the actual cost in terms of monthly mortgage payments is typically somewhat muted; for instance, a rate increase of this size on a $200,000 mortgage would add less than $60 to their monthly payments.

While it's better to lock in a mortgage deal when rates are lower, it's still important for would-be buyers or refinancers to do plenty of homework and crunch the numbers to make sure what constitutes affordability for them, especially in comparison with historical norms.




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