USA: the application for real estate loans fell by more than 40% in one year

While the real estate market in the United States is experiencing a peak of activity, there are fewer and fewer purchases made with mortgages due to rising interest rates.

The increase in interest granted by banks and credit institutions has led to a significant decrease in the amount of refinancing (people who already have a mortgage and are looking to change the terms of the contract) and the search for new loans to buy.

The total amount of mortgage loans requested last week in the United States decreased by 6 percent from a week earlier. But the truly impressive number is that it decreased by 41 percent compared to the same week but in 2021, all according to data from the Mortgage Bankers Association.

In one week, the average 30-year fixed-rate mortgage contract, which in the United States averages $647,200, rose from 4.8% interest to 4.9% interest. If it is mortgage loans in which the buyer puts 20 percent in cash, the incentives also went down. This is the fourth consecutive week in which interest rates rise and incentives decrease. This same type of loan, exactly one year ago, had an average interest rate of 3.36 percent.

But the biggest drop is seen not in mortgage loans for purchase, but in mortgage refinancing orders. The downward trend in these types of requests has been seen for months, but this week compared to the previous week it fell by 10 percent. The demand for refinancing processes fell by 62 percent if we compare this week's figures with those of a year ago.

“The volume of mortgage applications continues to decline due to the rapid rise in mortgage rates, as financial markets expect significantly stricter monetary policy in the coming months. As higher rates reduce the incentive to refinance, the volume of applications fell to the lowest point since spring 2019, ″ said Joel Kan, an economist expert in mortgages to the specialized chain CNBC.

A year ago, of the total number of applications for mortgage loans, refinancing comprised 51 percent, today it is only 38.8 percent.

The stable labor market in the country, with a rise in salaries, has caused the real estate market to move in a record way. But this has led to low inventory, and therefore we are facing a market where more money is offered than what the seller is asking for in order to buy a property. For those who are going to buy for the first time, with limited resources and reliance on a mortgage loan, buying is becoming increasingly difficult.

In addition, it should be noted that the sale of mortgage loans is an industry in itself. While it comes from a record period, the rapid decline is leading to layoffs at some of the largest companies in the country, such as Movement Mortgage and Better.com.

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