Prospective buyers facing challenges as borrowing costs climb to highest level in 2024
March saw a jump in new US single-family home sales after a muted February – but mortgage rates also hit their highest level last week since the beginning of the year, a factor that could weigh down on homebuying activity looking ahead.
New home sales for March ticked 8.8% higher on a month-over-month basis, government data showed on Wednesday, hitting a seasonally adjusted annual rate of 693,000 and surging past estimated figures for the same time last year.
That trend was driven by a swing towards the new construction market, according to analysts, as well as a significant acceleration in housing completions helping add new inventory.
Still, long-term mortgage rates continued their upward trajectory of recent weeks. The Mortgage Bankers Association’s (MBA’s) Weekly Mortgage Applications Survey showed that loan application volume dipped as rates reached their highest level last week since the end of 2023.
Climbing borrowing costs put a “damper” on applications activity, MBA’s chief economist Joel Kan said in comments accompanying the association’s report.
Mortgage qualification a growing challenge amid climbing rates
Unsurprisingly, those high rates are also dissuading many would-be sellers from listing their homes because their monthly payments would likely spike by moving and taking out a new mortgage.
Allycyn Bennett (pictured top), a loan officer with Sandstone Financial, told Mortgage Professional America that unconventional or non-traditional mortgage types were especially prominent in the current market as the most creditworthy borrowers take a step back from their homebuying plans.
“Many people that are calling right now, they’re more unique situations,” she said. “A lot of them are self-employed, maybe have income challenges, credit challenges, and need to do a non-traditional mortgage. I’m seeing more of those types of borrowers right now.”
After an unexpected jump in February, existing home sales in the US fell back to disappointing levels in March, according to the National Association of Realtors.https://t.co/N0mGDscBry#mortgageindustry #homesales #housingmarket #economy
— Mortgage Professional America Magazine (@MPAMagazineUS) April 19, 2024
Plenty of work is also often needed to get creditworthiness to the required level to qualify for a mortgage in the current climate, Bennett added.
“[For] the types of borrowers that have straightforward situations, what I’m having to do now is if there are credit issues, we’re spending months working on getting credit to where it’s acceptable,” she said. “If there are income issues, we’re having to pivot and typically work on non-traditional loans like the non-QM, bank statement loans.
“And so the situation today seems to be more challenging from a qualifying perspective than in my 30-plus years [it] normally has been.”
Those hurdles are presenting plenty of obstacles for originators and their clients at present – but Bennett is staying positive, noting that now is the time to keep an open mind in the current market and go through every possible option for clients to get a deal over the line.
“In the past, I might have been more selective, but I am exploring every opportunity,” she said. “I’m pushing as far as they can to try to make a deal happen when in the past, it may not have.
“I think also attending as many webinars and educational online seminars that we can try to educate ourselves about programs that we may not have been aware of [is important], trying to work on our skills that maybe we’re weaker at since times are slower – to try to become more skilled in all sorts of areas.”
When will interest rates start to fall?
Many borrowers and prospective homebuyers are likely holding off on jumping into the housing market until interest rates start to slide, with all eyes on the Federal Reserve to see whether cuts to its funds rate arrive in the coming months.
Still, persistent inflation and a surprisingly resilient economy in recent months have sparked speculation that the central bank could push its timeline back for lower rates – or even decide against cutting rates entirely.
“As long as our job market remains as tight as it is, I think that the remainder of 2024 is going to look a lot like 2023,” Bennett said. “I think it’s going to remain very challenging through the end of the year. There’s been this tug of war between the financial markets, financial analysts, and Jerome Powell and the Fed.
“When the stock market started getting jubilant, they were the ones that were predicting rates were going to go lower – but Jerome Powell has always said it’s like the Fed is going to decide when that happens. Again, I just think it’s going to take a lot longer than anyone anticipated and hoped for.”
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