The mortgage rate is above 7% and it is becoming increasingly difficult to qualify for a loan
J.B. Reed | Bloomberg | Getty Images
It’s a double whammy for potential buyers. Not only are interest rates skyrocketing, but it is becoming increasingly difficult to qualify for a loan.
The average rate on the popular 30-year fixed-rate mortgage climbed more than 7% late last week, according to Mortgage News Daily, and is expected to hit around 7.125% on Tuesday. It’s more than 7% for several days.
Meanwhile, the availability of mortgage credit is now at the lowest level since March 2013, when housing was slowly recovering from the financial crisis at the end of the previous decade. It fell for the seventh consecutive month in September, down 5.4% from August, according to a monthly index from the Mortgage Bankers Association.
While lenders may be desperate for business as mortgage demand plummets due to higher rates, they are also more concerned about a weaker economy, which could lead to higher delinquencies. Leaders and economists have warned that the United States could slide into recession in the coming months as the Federal Reserve raises rates to fight high inflation.
Mortgage defaults, at the moment, are near record highs. While new foreclosure stocks rose 15% from July to August, they were still 44% below pre-pandemic levels, according to Black Knight, a mortgage software and analytics firm.
Credit availability has fallen the most for jumbo loans, which more borrowers now need to use due to rising house prices, according to the Mortgage Bankers Association. Higher prices also encourage more borrowers to switch to variable rate mortgages because they offer lower interest rates. These loan rates can be fixed for up to 10 years, but they are considered riskier mortgages.
Borrowers are clearly worried that mortgage rates will rise even further. Although mortgage rates do not follow the fed funds rate exactly, they are heavily influenced by Fed policy.
“The Fed is determined to raise rates as high as possible and hold them for as long as possible, even if it means the economy suffers,” Matthew Graham, chief operating officer of Mortgage News Daily, wrote on its website.
Graham noted that the Fed is disregarding mortgage rates or the housing market because house prices are overheating and a correction is “good and necessary.”