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Demand for Mortgage Loans Falls as Rates Rise Slightly


Demand for Mortgage Loans Falls as Rates Rise

Every time that mortgage rates creep above 5%, applications for mortgage loans fall as homeowners put off refinancing. The Mortgage Bankers Association noted that average 30-year fixed mortgage rates in mid-October had crept above 5%, reducing the incentive for home loan refinancing. Although home sales have risen, likely due to the last-minute rush of first-time buyers wanting the federal tax credit, home prices and mortgage loan applications for home purchases continue to lag.

Economic Factors, Tax Credit Pullback Could Hurt Home Sales

Forecasters indicate that several factors could converge to keep US home prices and sales low:

  • Glut of foreclosures. Many US housing markets are glutted with slow-moving foreclosed properties, and slow sales create stagnant or falling home values. The bargain-basement pricing of foreclosed homes affects selling prices for all homes in the area. Home buyers, once tempted by the likelihood of rapidly rising home equity, can't count on accruing wealth through appreciation of home value.
  • Expiration of federal first time buyer tax credit. This program, which provides first-time home buyers a tax credit of up to $8,000, expires on November 30. The recent extension should serve to foster demand for home purchases as we roll into 2010.
  • Experts have attributed a rise in home sales to this tax credit but worry about home prices and sales when the credit expires. Home sales could fall as much as 15%, according to Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
  • Unemployment fears. As unemployment rates continue to rise in many states, many would-be home buyers are taking a wait-and-see stance on purchasing homes.

If you're prepared to buy a home or want to refinance your existing mortgage, contact real estate professionals and mortgage lenders to find out what's available. Many states, counties, and municipalities offer low-cost home mortgage financing for first-time home buyers and may even provide down payment assistance. Current mortgage rates may be seeing a small uptick, but they are still relatively low. HSH Associates surveys mortgage lenders on current mortgage rates, allowing you to keep an eye on where the market is moving.

Karen Lawson

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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