Over the past several years, the dominant force in the mortgage market has been refinancing. The combination of tough lender standards for buyers and extremely low mortgage rates made it so that the people who were the most likely to get a home loan were those who already owned a property but wanted to make ownership more affordable. But now, rates are starting to rise, refinance activity is falling naturally, and buyers are getting into the market as the economy improves.
To that end, it now seems quite likely that, by the end of the year, it will actually be buyers who make up the largest portion of the mortgage market. That, in turn, could help spur additional economic growth overall, and potentially put more homeowners in a position to sell. There are a number of reasons why this could be the case sooner than later, but perhaps the biggest is rising mortgage rates will continue to price out owners who have lingered on the sidelines without refinancing.
What does that mean?
Since 2012, mortgage rates have mostly hovered near some of the lowest levels ever recorded in the housing market, encouraging millions of homeowners to re-enter the mortgage process and refinance their existing home loans. In a lot of cases – at least as far as people who obtained mortgages prior to the early 2000s housing boom – it would have been possible for owners to cut their mortgage rates in half.
But these days, so many people have refinanced that for the most part the only people left who did not do so either could not afford to, or have developed skewed perceptions about what actually constitutes affordability. Some people seemed to think it was possible rates would decline lower than the 3.4 percent range where it recently bottomed out. Now, with rates on the rise again, it seems that's not going to be the case, and that many may have missed their chance to refinance affordably.
What comes next?
While rising rates could be a deterrent to some buyers – though perhaps not as much as home values that have been appreciating for more or less the entirety of the post-recession era – people are generally still eager enough to buy that they won't stay out of the market forever. It seems the dream of homeownership is a stronger force than concerns about paying more over the life of a loan, and that trend should help to power the broader housing market and even national economy moving forward.
Of course, it's always possible that economic difficulties could arise overseas once again, and if that happens, mortgage rates might slump once again. That would likely be welcome news to buyers and refinancers alike, but it could also upset the current trends in the market and delay the point at which mortgages for buyers are once again the most common type of loan.
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