Homebuyers retreated from the market for the week ending May 31 as they balked at high mortgage rates, sending applications for home loans plunging during what is typically the hot season for the housing sector.
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Applications for mortgages fell by more than 5 percent compared to the prior week, according to the Mortgage Bankers Association (MBA). Refinancing of home loans also fell 7 percent, while the Purchase Index, which focuses on buying activity independent of those looking to change terms on their loans, dropped 4 percent.
The depressed activity in the mortgage market came amid rising costs of home loans, Mike Fratantoni, MBA’s chief economist, said in a note shared with Newsweek.
“Mortgage rates moved slightly higher last week, with the 30-year conforming rate reaching 7.07 percent—its highest level since early May—despite incoming data indicating somewhat slower economic growth,” Fratantoni said. “After adjusting for the Memorial Day holiday, both purchase and refinance application volumes were down, with purchase activity specifically 13 percent below last year’s level.”
Home loan applications across the different mortgage market segments were down, though some less than others.
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“Government purchase volume was down less, helped by growth in VA applications.
The market is relying on first-time homebuyer demand, and many first-time buyers do use government lending programs,” Fratantoni added.
The decline in mortgage applications echoed recent market trends that show buyers are staying out of the market amid rates that are at their highest in close to two decades. Sales of homes are down during the spring season, a time of the year that typically tends to be highly active.
Mortgage rates are elevated while price of homes are also expensive, a double whammy for buyers interested in purchasing property.
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One development that experts note has been growing is lower-priced properties that are smaller, offering an opportunity for first-time homebuyers. While price per square foot is still rising, the share of homes priced between $200,000 to $350,000 available in the market is increasing, according to Realtor.com’s chief economist, Danielle Hale.
“We have seen the number of homes, that are priced in those lower price categories, are a growing share of what’s on the market,” Hale told Newsweek recently. “So that means, even though prices are still going up on a per-square-foot basis, there are more options in that affordable price tier which tend to be smaller homes and so that is good for entry-level buyers.”
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com