U.S. Mortgage Demand Surges as Fed Hints Monetary Tightening Cycle’s End in Sight
Key takeaways
- 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) dropped from 6.5% to 6.48%
- This was enough to spike home refinancing applications by 10% this week
- From an investor perspective, the housing market still remains tricky
The Fed’s hint that interest rate hikes may come to an end soon gave the mortgage market and homeowners some hope, resulting in a 10% spike in refinancing applications this week. The U.S. housing market is pretty wavy at the moment, so let’s get into the details on what happened with mortgages and what it all means for investors.
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What’s the latest on mortgages?
Last week, Fed chair Jerome Powell hinted there might be an end to punishing interest rate increases after the May meeting brought levels to the 5% to 5.25% threshold. As a result, the average 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) dropped from 6.5% to 6.48%.
That was enough for prospective homeowners and movers to jump, causing a 10% bump in refinancing loans compared to the previous week. Applications for purchasing a new home also jumped 5%, but home prices still remain tight thanks to a chronic undersupply of homes leading to a housing shortage.
Refinancing is still down 44% compared to this time last year as homeowners hold out for the interest rates to come down further, but it’s caused pent-up demand. The signal from the Fed could open the floodgates for refinancing for the rest of the year.
What does it mean for investors?
The National Association of Home Builders (NAHB) predicts 30-year mortgage rates could fall to 5.8% by the end of the year. With the average 30-year fixed mortgage rates currently at 6.39% according to Freddie Mac it’s enough of a climbdown to restart the market. It’s the silver lining prospective homebuyers and existing homeowners are looking for.
From an investment perspective, many institutional homebuyers are pulling out of the market as they think housing prices are poised for a downturn. In Q1 this year Invitation Homes sold off 297 homes versus the 194 it bought, and Yieldstreet hasn’t purchased a single home yet this year.
There are early signs of falling house prices: Western states are seeing a slide, with San Francisco seeing a 14.5% median drop in single-family, existing-home prices. But other areas, like Southern states and the Northeast, are still climbing, partly down to a lack of available homes.
The bottom line
The U.S. housing market is pretty tricky right now, with many investors and institutional buyers thinking a house price crash is coming. For investors, it’s potentially one to swerve.
For homebuyers, it could be a good opportunity after a decade of climbing home prices. As for the mortgage market, refinancing in particular could be fertile ground for the industry if interest rates stabilize.
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