Inflationary pressures have finally forced the Federal Open Market Committee (FOMC) to discuss raising interest rates and tapering its bond-buying program. Now the Fed is expected to raise rates as early as 2023, which could have a significant impact on mortgage rates and the housing market.
Historically low mortgage rates have been fueling unprecedented demand for home buying ever since the COVID-19 pandemic broke out, causing home prices to surge. The FOMC’s decision to taper off bond-buying would have a significant impact on mortgage rates, finally raising them to a level that would reduce homebuying demand.
Currently, home prices are increasing at a neck-breaking pace, causing homebuyers to confront issues of affordability. According to the MAXEX Market Report, June saw a significant increase in average loan amounts reflecting the increase in home prices. June’s average loan amount for 30-year fixed-rate jumbo loans rose by $55,000 month-over-month and is close to surpassing $1.1 million.
However, purchases are still dominating the volume of loans traded through the exchange. In June, purchases made up more than 50% of loan volume for the second month in a row.
The share of ARMs traded through the exchange has increased for five straight months. ARMs continued to increase to a near term monthly high at 13.6%. This is also the third consecutive month of double-digit ARM production traded through the exchange.
The price of lumber has dropped by more than 40% as demand tapers slightly and supply increases. Prices are still more than double what they were pre-COVID, but it’s a significant change as high prices finally forced a drop in demand and allowed supply to catch up.
Despite interest rates being very low, mortgage applications were down by 6.9% in the last week of June. That points directly to the issues of price and availability. Recent data from NARs reports, “The median existing-home price for all housing types saw a record year-over-year increase of 23.6% in May 2021.”
The National Association of Realtors’ (NAR) data shows that sales of homes worth more than $1 million were up nearly more than 244% annually in May, meaning we can expect a comparable annual increase for June’s data.
Officially, Fed Chair Jerome Powell said the FOMC is not yet wavering on its bond purchases, and is only beginning to discuss the potential for a discussion about cutting back.
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