Real Estate News

Fears of falling affordability might be pushing buyers out of the market

Published: 06 Nov 2017

Affordability has been the watchword in the mortgage market for some time now, with many would-be buyers and current owners seeking new homes loans while rates remain below 4 percent. But it's beginning to look as though that level of affordability might not be around much longer, especially as mortgage rates continue to rise.

In the week ending Oct. 27, consumers scaled back their pursuit of home loans, as mortgage application activity dropped 2.6 percent from the previous week, according to the latest data from the Mortgage Bankers Association. That decline came through a 5 percent drop in refinance applications and a 1 percent dip for purchase requests. It's worth noting, however, that purchase applications were still up 10 percent on an annual basis, and that the refinance share of the market, which took up the vast majority of all mortgage activity for much of the past several years, dipped to just 48.7 percent of all applications filed.

Mortgage affordability continues to shift, and it could make buyers wary.Mortgage affordability continues to shift, and it could make buyers wary.

Rates pushing higher
Meanwhile, the latest Primary Mortgage Market Survey from Freddie Mac shows that mortgage rates are pushing closer to 4 percent once again. The average 30-year fixed-rate mortgage carried a rate of 3.94 percent in the week ending Nov. 2. That was unchanged from the previous week but up from 3.54 percent on an annual basis. At the same time, 15-year FRMs, which are most often used in refinances, saw rates rise to an average 3.27 percent from the previous 3.25 percent and were also up from 2.84 percent year over year.

"Following a strong surge last week, rates held relatively flat this week," said Sean Becketti, chief economist at Freddie Mac. "The 30-year mortgage rate remained unchanged at 3.94 percent, while the 10-year Treasury yield dipped roughly 4 basis points. The markets' reaction to the upcoming announcement of the next Fed chair may impact the movement of rates in next week's survey."

The as-yet-unconfirmed new chair of the Federal Reserve Board is just one of two issues currently swirling around the central bank that could impact mortgage rates. The other is the expectation that the Federal Open Market Committee will vote to raise interest rates, which affect short-term lending but often leads to changes in mortgage rates, in December.

Other aspects of affordability
All these changes are also coming as home prices continue a slow but steady ascent, according to Seeking Alpha. While incomes have certainly grown in the past several years - fueling higher demand in the market today - they're not rising quickly enough for many Americans to outpace home price growth, especially with such a constrained inventory.

With these issues in mind, it might be important for consumers to protect their investments when they're able to make a home purchase, and ensure they have the right title insurance that will insulate them in case any issues with their homes' ownership arise. Combining that certainty with today's still-strong affordability can go a long way toward providing would-be buyers with peace of mind.