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Mortgage Demand Strengthens – What’s The Market Outlook?

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A topsy-turvy real estate market that saw scorching hot property prices and record low mortgage applications is starting to balance out. CNBC has charted a 7% surge in mortgage refinance applications through September 2021, with rates in new applications also joining the rally. With highs not seen since April, the market is looking more balanced than it has in months, if not an entire year. The story isn’t over there, however. While mortgage and refinancing rates are up, the prevailing market conditions are not in line with how that should be. Interest rates have stalled, inflation is set for a rebalance, and housing prices aren’t exactly promising. With that in mind, analysts are scratching their heads at where the market is set to move to next, and whether large technological impetus – such as from cryptocurrency – will cause another period of volatility.

Mortgage rate volatility trends

The Fed remains committed to the ZIRP yet these rates are simply not reflected in what the housing market is experiencing. As Housing Wire outlines, market volatility remains extremely high, with yields swinging up to 50 points week on week. For would-be homeowners trying to see where the difference is and looking at the comparison rates offered by mortgage lenders, this can be chastening on the home purchasing process and put them off. This, in turn, leads to a bear market in the real estate sectors – buyers are scared, and the market comes with them. While there has been a surge in mortgage applications and refinancing, it will take a long-term concerted strategy from the Fed – and the evidence in interest rates to back it up – to make the wider economy buck the trend and gain some real stability. However, even while the matter of loans gains stability, there are serious long-term issues stemming from the house prices that did arise from the previous surge.

The rise of prices

Late September saw the inevitable cool of house prices. Reuters note that the pandemic-fueled house price surge has likely seen its end, especially as new construction ramps back up. As primary industries like concrete, chemicals and lumber start getting back up to speed, there are plenty of homes shooting up across the country, deflating the trend of red-hot housing markets. While prices are cooling, they are not decreasing, and this creates an issue for would-be homeowners. Wages have not seen huge increases over the past year – they’ve stayed steady. That has been outstripped both by inflation and by increases in house prices. The result is a housing market still red-hot, and still likely to be personified by high house prices and the potential overvaluation that comes with that. Homeowners and buyers will need to be especially wary of this effect, and ensure that they are prepared; their deposits will be larger, as will their mortgages, impacted by fluctuating interest rates.

A future trend

What does this concoction point to? You have record-high house prices that, while cooling, will remain high, and at a rate that outstrips wage growth. You also have interest rates that remain relatively high and will continue to do so, despite tapers from the Fed and the general move back towards ZIRP. This is an unsustainable trend, yet, for analysts, it’s a boring one. 

Bloomberg is of the opinion that 2022 will represent a very boring housing market. While the current conditions are not ideal ,they do have the effect of shutting out potentially unreliable buyers. When deposits are high, and interest rates are high, it puts off the sort of marginal lenders who, in the past, have created problems in the macroeconomic state of the USA and been predated upon by banks that are looking to give out cheap loans with poor credit history. That means that the future of lending can be something more stable. This can seem unfair to first-time buyers, but it will create a market that is sustainable in the future – not just now.

Technology will, of course, play the next big role. Crypto is already being deployed for mortgage deposits, and it’s already being accepted by some vendors as payment for rent. This has a huge impact on the monetary policy of the entire real estate market. Furthermore, with Chain signaling huge crackdowns on their nascent cryptocurrency industry, there are likely to be worldwide ripples that generate yet further volatility. The market may not be as boring in 2022 as estimated, at least when it comes to trade outside of the conventional sphere.

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