Mortgage rates play a crucial role in the numbers of home loans disbursed by lenders across the nation. Even a slight increase in these rates has a profound impact on the number of people applying for mortgage loans. This is because any increase in interest rates increases EMI’s and the total amount of money the borrower repays to the lender in the long run. Increasing mortgage rates has a deep impact on the real estate industry in the long run.
Los Angeles has recorded a sharp decline in home loan originations
After hovering around the 4% mark for a long time until August 2017, mortgage rates across the nation crawled upwards and reached a level of around 4.5% in August 2018. According to Freddie Mac, these are the average mortgage rates given by lenders for a 30-year fixed mortgage loan. Rates for a 15-year fixed mortgage loans are still hovering around 4% mark. While home loan originations have fell sharply all over the country, this dip is sharpest in Los Angeles. Here, the number of home loans approved by lenders in the second quarter of 2018 (April to June) stands at 70,000. This is a whopping 11% less than the number of loans originated during the same period last year. This figure is also the smallest in terms of number of originations in the Los Angeles area in the last 4 years.
It was not just Los Angeles where home loan originations showed a sharp decline. Other important cities like Chicago and San Francisco also registered a sharp decline in home loan originations. In Chicago, they fell to 56,332, a drop of nearly 9%. Overall, the total number of home loan originations stood at more than 2 million, an increase of less than 1% across the nation.
Refinancing has shrunk, and foreclosures are on a rise
Increase in mortgage rates has also made refinancing less appealing for the homeowners. Total numbers of home loans that were refinanced last year were less than 800,000, a decline of 2% from previous year. As monthly repayments become costlier, the situation has become challenging for a clear majority of homeowners across the nation. This is reflected in the increasing numbers of foreclosures. Also, with lenders asking for a high down payment from the borrowers, it has become very difficult for first time homebuyers to finance their homes. The average down payment for single family homes during the second quarter of this year was $19,900, much higher than the figure of $16,925 during the same period last year.
30-year fixed mortgage rates are increasing every week
If you are thinking of buying a new home, you should know mortgage rates for a 30-year fixed loan have increased for the 4th straight week now. According to Freddie Mac, average mortgage rates for a 30-year loan have jumped to 4.65%. This rate was 4.6% last week. A year ago, 30-year fixed mortgage rate was only 3.83%.
According to experts, there are many reasons why mortgage rates are climbing with passing time. One of these is a strong economy while a significant role in pushing the mortgage rates up is played by the trade tensions between the U.S and other countries like China and Turkey. According to Sam Khater, the chief economist at Freddie Mac, the fact that U.S government is making efforts to sell off its debts is also jacking up mortgage rates across the country.
With no signs of a let up in increasing mortgage rates, it is better to plan your purchase now rather than postponing it for future. Use our Mortgage Calculator to discover your ideal price range.