Fewer Americans are buying homes as worsening inflation takes toll

07/15/2022 / By Belle Carter

Fewer Americans are purchasing homes and the ones who are buying are acquiring more affordable homes as consumers are greatly affected by the worsening inflation. Mortgage demand fell last week compared with the previous week, and the average loan size shrank as well.

According to the Mortgage Bankers Association’s (MBA) seasonally adjusted index, mortgage applications to buy a home went down four percent for the week and were 18 percent lower than the same week in 2021. The report also included an adjustment for the July Fourth holiday.

House hunters may have been hesitating to purchase due to higher mortgage rates. However, the report noted that the rates held steady last week.

The average contract interest rate for 30-year fixed mortgages with conforming loan balances ($647,200 or less) remained at 5.74 percent, with points decreasing to 0.59 from 0.65 (including the origination fee) for loans with a 20 percent down payment.

“Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook,” MBA economist Joel Kan said.

He added that after reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market.

Due to higher interest rates, applications to refinance a home loan have been notably weaker. It raised two percent for the week but was 80 percent lower than the same week a year ago. At the same time last year, the average mortgage rate was 3.09 percent.

Realtor.com chief economist Danielle Hale said homebuyers shouldn’t expect mortgage rates to fall back to three percent any time soon.

“The Federal Reserve is trying to fend off inflation by raising interest rates and that move will keep mortgage rates high for the foreseeable future,” she said.

Consumers have faced a difficult market this year as home prices have been in the $500,000 range, mortgage rates are soaring and there has been stiff competition from high-income buyers. (Related: The Fed is destroying the home mortgage industry as rate hikes due to ‘Bidenflation’ lead to a 70 percent reduction in lending.)

Homeownership now a distant dream for most Americans

The ever-skyrocketing cost of house purchase has pushed middle-income Americans’ homeownership dream aside. Most of them stopped shopping and resorted to renting.

“The market is getting much more challenging for home shoppers – we’re seeing some of them just quit and put their plans on hold,” Hale said.

Aside from the skyrocketing mortgage price, another factor that may have contributed to this is the availability of houses for sale for middle-class citizens.

A recent analysis by the National Association of Realtors found that across America, about 250,000 houses are currently for sale that is considered affordable for households with between $75,000 and $100,000 in annual income. This is a marked decline from about 656,000 available homes before the Wuhan coronavirus (COVID-19) pandemic started.

Also, it is no longer enough for a buyer to have a ready down payment and a pre-approved mortgage. Redfin, a reputable real estate firm, said about 30 percent of homes were bought with all-cash offers in 2021, up from about 25 percent in 2020. In cities such as West Palm Beach and Naples, more than 50 percent of purchases were all-cash deals.

Analysts also say that home ownership in the U.S “is a signifier of the upper class now.”

“Unfortunately, the middle-class dream of home ownership has been fading away,” said Redfin chief economist Daryl Fairweather.

Rubeela Farooqi, the chief economist at High-Frequency Economics, said in a report that the prices remain excessively high and are impacting affordability.

The significant impact of the pandemic has also reduced affordable housing options and the total supply of single-family homes. This means that renting is becoming a more favorable option for many people, National Rental Home Council said.

Watch the below video that talks about soaring mortgage rates that cut mortgage demand to less than half compared to last year.

This video is from the SecureLife channel on Brighteon.com.