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It’s a double whammy for potential home buyers. Not only does the interest rate rise, it becomes more difficult to qualify for a loan.
The average rate on the popular 30-year fixed mortgage rose above 7% late last week, according to Mortgage News Daily, and is expected to reach around 7.1[ads1]25% on Tuesday. It has been over 7% for several days.
Meanwhile, mortgage availability is now at its lowest level since March 2013, when housing was slowly recovering from the financial crisis at the end of the previous decade. It fell for a seventh straight month in September, down 5.4% from August, according to a monthly index from the Mortgage Bankers Association.
While lenders may be desperate for business as mortgage demand falls due to higher interest rates, they are also more concerned about a weaker economy, which could lead to higher delinquencies. Executives and economists have warned that the United States could slip into a recession in the coming months as the Federal Reserve raises interest rates to combat high inflation.
“There was less appetite for lower credit scores and high [loan-to-value] loan programs,” Joel Kan, a Mortgage Bankers Association economist, said in a release.
Mortgage delinquencies are currently near record lows. While new foreclosures rose 15% from July to August, they were still 44% below pre-pandemic levels, according to Black Knight, a mortgage software and analytics company.
Credit availability fell the most for jumbo loans, which more borrowers today have to use because of higher home prices, according to the Mortgage Bankers Association. Higher prices have also caused more borrowers to turn to adjustable-rate mortgages, because they offer lower interest rates. These loan rates can be fixed for up to 10 years, but they are considered riskier mortgages.
Borrowers are clearly worried that mortgage rates will move even higher. Although mortgage rates do not track the federal funds rate exactly, they are heavily influenced by Fed policy.
“The Fed is determined to raise interest rates as high as possible and keep them there as long as they can, even if it means the economy suffers,” Matthew Graham, CEO of Mortgage News Daily, wrote on his website.
Graham noted that the Fed is not assessing mortgage rates or the housing market because housing prices are overheated and a correction is “good and necessary.”