Home Buyers Rush for Mortgages Amid Rate Drop

Mortgage rates decreased slightly, prompting a surge in new home loan applications, reports the Mortgage Bankers Association (MBA). The 30-year fixed rate dropped to 7.02 percent as of March 1, resulting in a nearly 10 percent increase in mortgage applications, including a rebound in refinancing activity, up by 8 percent for the week.

Lenders note that economic data on inflation meeting expectations indicates progress in the Federal Reserve’s efforts to control price hikes, potentially leading to rate cuts later in the year. This development and the recent decline in inflation have contributed to the slight drop in mortgage rates, according to Mike Fratantoni, MBA’s chief economist. This rate decrease has sparked increased buyer interest, particularly among first-time buyers, amidst the ongoing challenges of tight housing inventory and elevated home prices.

Biden Proposes $10,000 Homebuyer Tax Credit: Qualifications Explained

President Biden has proposed two tax credits to address the challenges of homeownership in the face of soaring home prices and high-interest rates. One credit offers $10,000 to first-time homebuyers, while the other provides a similar amount for current homeowners selling their “starter homes” to move into more significant properties. These credits are seen as crucial in addressing housing affordability, with advocates applauding them as potentially transformative measures.

The tax credits target middle-class families, limiting eligibility to households earning less than $200,000 annually. They aim to stimulate homebuying activity by reducing the financial burden on buyers and encouraging current homeowners to sell, unfreezing the real estate market. However, their implementation hinges on congressional approval, which may prove challenging amidst political divisions, though the White House hopes to see them in effect by the 2024 tax year. Additionally, Biden has proposed further initiatives to fund the construction of affordable homes and rental units, recognizing the need to address the housing supply shortage and provide financial assistance to homebuyers.

Housing Inventory Expected to Increase by 40% in 2024

Mortgage rates were expected to drop, potentially leading to increased housing inventory as sellers took advantage of lower rates. However, the opposite has occurred: inventory has been rising alongside increasing mortgage rates for the past two years. Despite higher rates than last year, available inventory has increased by 21%. This trend is expected to continue until there’s a shift to declining interest rates, likely influenced by factors such as the Federal Reserve cutting short-term rates, receding inflation, and rising unemployment. Unless mortgage rates decrease, there could be a significant surge in inventory, possibly reaching 40% higher than the previous year by July.

Market outliers, particularly in Gulf regions, are already experiencing inventory levels surpassing pre-pandemic levels, while other areas like the Northeast and parts of the Midwest are just beginning to see inventory growth. The number of new listings is increasing steadily, which could lead to more sales in 2024. However, with inventory up and demand down, there’s less pressure on home prices to increase. Home prices have remained stable despite affordability reaching generational lows, indicating cautious optimism among sellers for the upcoming peak season.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.