Knocking on 7%: Mortgage Rates and the Chilling Effect on Home Affordability
- Barry B
- Jul 6, 2023
- 1 min read
As mortgage rates inch closer to 7%, home buying activity cools. Mortgage rates have seen a notable increase this week, reaching 6.81%, the highest point in 2023. This uptick, spurred by the rise in the 10-year Treasury yield and continued inflation, has strained the housing market and driven many potential buyers to pause their plans.
Rising rates discourage homeowners from listing, exacerbating housing supply issues. The knock-on effect of the increase in mortgage rates has been a reduction in housing activity. Homeowners are reluctant to relinquish their low-interest rates, resulting in a significant decrease in the inventory of homes for sale.
Buyer demand hits a new low amid surging rates. With rates continuing to climb, buyer demand has dwindled, evidenced by a 5% decrease in purchase applications and a drop in the average loan size. The shrinking affordability of homes is especially affecting buyers in high-priced markets.
The inventory problem deepens as homeowners are reluctant to sell. In addition to dampening demand, higher mortgage rates have made homeowners more reluctant to list their homes, exacerbating the existing inventory problem. With fewer homes on the market compared to previous years, the housing crisis shows no signs of easing soon.
A shift to a slower housing market may occur if rates reach 7.5%. While some homebuyers have adapted to the new norm of higher mortgage rates, a further surge could trigger a significant slowdown in the housing market. This would be particularly likely if rates climb to 7.5%, as anticipated by some industry experts.