When mortgage rates increase – and current or prospective homeowners are interested in refinancing or buying – there are two schools of thought that govern what decision to make. The first is to act now, assuming that by waiting, rates will only rise further. The other is to stay on the sidelines in the off chance that they'll ease, whether slightly or significantly, depending on economic conditions.
More recently, since mortgage rates crossed above the 4 percent threshold last November for the first time in almost a year, Americans have opted with the former mode of operation, according to newly released data.
In the latest mortgage applications survey, detailed by the Mortgage Bankers Association, loan application volume jumped almost 6 percent through the first week of January. A slight majority of those who filled out paperwork did so for refinancing purposes at 51.2 percent, down only slightly from the previous week's 52 percent. The general rule of thumb is that if homeowners can reduce their interest rate by half a percentage point, refinancing makes sense.
2 percent increase in new-home sales
Not only have more Americans take advantage of the historically low mortgage rate environment – evidenced by application volume, but they're also buying new homes at a higher clip. Specific to home purchases, activity rose in December, up 2 percent on a year-over-year basis, according to a separate report also released by the MBA.
Lynn Fisher, MBA vice president of research and economics, noted that mortgage affordability which lasted throughout 2016 was evidenced by the fact that borrowing activity for new single-family homes rose every month on a yearly basis. What has yet to be determined is how the market will respond now that rates are much higher than when 2016 began.
"Growth in applications set a high benchmark in December 2015, and it is not yet clear if the recent rise in interest rates is having an impact on applications for new homes," Fisher explained. "Looking forward to 2017, MBA continues to forecast more than 10 percent growth in single-family housing starts."
Inventory must pick up the pace
The current level of supply is far short of demand, as asking prices continue to surge, though there has been a slight pull-back regarding the degree to which home values have risen as of late. Among all housing types, it costs buyers over $250,000. National Association of Realtors Chief Economist Lawrence Yun says there is a lot riding on increased property development, particularly as it pertains to the homeownership rate. It presently sits at the lowest ebb in approximately 50 years, at 61 percent, according to statistics maintained by the U.S. Department of Commerce.
"Some would-be sellers may be reluctant to move up or trade down – especially if they've refinanced in recent years," Yun said. "That's why it's extremely necessary for home builders to step-up their production of homes catered to buyers in the affordable price range. Otherwise the nation's low homeownership rate will struggle to shift higher in 2017."
For the second report in a row, mortgage rates have fallen. During the week that concluded Jan. 12, 30-year fixed-rate loans averaged 4.1 percent, according to Freddie Mac's most up to date Primary Mortgage Market Survey. Still, that's up from where 30-year FRMs were one year earlier, averaging 3.9 percent.
Freddie Mac Chief Economist Sean Becketti pointed out it's only the second time since the election that rates have fallen. The point to which they'll start to rise again largely depends on the level of economic growth the country experiences in the days and months ahead.
"If strong wage gains persist, they may push inflation and interest rates higher," Becketti explained. He added that In December, wage growth superseded economists' expectations, rising 0.4 percent.
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