Slowing real estate sales and higher interest rates are putting a whammy on the mortgage industry. Yet in the middle of the bad news, they market is only at a 4 year low and we have had some of the lowest interest rates in a lifetime during this period. The reaction to the capital markets after 9/11 predicated the Federal Reserves to loosen the money supply and lowering interest rates. Otherwise the economy would have been in worse shape.
Now we are just dealing with the hangover from cheap money and credit.
Mortgage application volume fell to its lowest level in more than four years last week, the latest indication that the once red-hot real estate market is cooling down.
The Mortgage Bankers Association reported Wednesday that its market composite index, a gauge of mortgage loan application volume, fell to 527.6 last week, down 1.2 percent from the previous week’s reading of 533.8. This is the lowest index reading since May 2002.
The drop in loan volume comes as little surprise to most analysts, according to Frank Nothaft, chief economist at Freddie Mac.
“On the whole, we expect lower origination volume throughout the year. It may not fall week by week and it may pick up a little bit at times, but we expect a decline,” he said.
The main cause are higher mortgage rates. Interest rates on fixed mortgages are at the highest level in four years and rates on adjustable loans are the highest in five years, Nothaft said.
The Federal Reserve has increased key short-term interest rates by a quarter percent 17 consecutive times since June 2004. Higher interest rates make the cost of borrowing more expensive.
Although the central bank has indicated a pause in interest rate hikes is near, the effects of the increases will ripple through the economy for at least the next year, Nothaft said, which will continue to affect mortgage volume.
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