Mortgage Demand Dropping - Find Out Why

Fixed-rate mortgages continue to decline rather than increase, which was expected of the second half of 2014. Last week, they reached the lowest average of the year, as reported by Freddie Mac. For the week ending August 21, the average 30-year fixed-rate mortgage was 4.10 percent (down from 4.58 this time last year and 4.12 percent last week), while the average 15-year fixed-rate mortgage was 3.26 percent (down from 3.60 percent this time last year and 3.24 percent last week). Freddie Mac predicts new and refinance mortgage origination volume this year to be the lowest since 2000, at approximately $1.15 trillion.

 So why has mortgage origination declined? Freddie Mac analysts identify three reasons:

1. The refinancing boom is over. The number of home refinances has fallen 60% from 2013 to 2014 and is expected to decrease another 50 percent from 2014 to 2015. Mortgage rates are expected to rise soon, discouraging borrowers from refinancing.
2. Home sales are low. Compared to the first half of 2013, home sales have fallen roughly 5 percent in the first six months of this year. Reasons include slower economic growth, a phase of higher mortgage rates, a harsh winter, minimum new home construction, and limited inventory.
3. More buyers are using cash. Although the number of buyers paying in cash is expected to decrease alongside the number of distressed homes on the market, all-cash home sales rose from 31 to 33 percent in the first six months of 2014.

Whatever the reason, now is the time to take advantage of lower borrowing costs before they inevitably rise!

Mortgage Rates Rise

Fox Business reports that, as of June 17th 2013, mortgage rates had risen for six straight weeks. In early May, the fixed rate was 3.52%. The benchmark 30-year fixed-rate mortgage further increased from 4.1% to 4.14% within the past week (Bankrate.com). Until the first week of June, the fixed rate had been below 4% since May 2012, an entire year earlier. Mortgage rates are no longer near record lows, as markets react to the supposition that the Fed may soon reduce its $85-billion-per-month bond-buying program. This program has helped keep rates low; however, once the Fed determines that the economy has recovered well enough to support itself, the program may be reduced or abolished altogether. 

While it's unlikely rates will return to their recent lows, they may stabilize. John Stearns, a mortgage banker for American Fidelity Mortgage Services in Mequon, Wisconsin, claims that 4% for a 30-year fixed is going to become standard.

The recent increase in mortgage rates has caused some people to urgently refinance their homes, as they are concerned rates will continue to increase. Jim Sahnger, a mortgage loan originator for FBC Mortgage in Jupiter, Florida, points out that mortgage rates are constantly changing, and that what someone can get today may not be available tomorrow. 

There are different ways to interpret this news. While the latest rates are nearly half a percentage point more than rates were this time last year, they are still much lower than the 6-7% people with older loans may still be paying. 

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