In Just 2013 we blogged about the biggest rise of interest rates in 25 years brought the refinancing applications to a 2-year low. Applications for purchase loans have also declined by 4%. Now the rerun of the same movie is out with the Mortgage applications down at a 13 year low.
The drop-off follows as a 1 percentage point increase in mortgage rates from their historic lows. The average rate for a 30 year mortgage is 4.47% and these higher rates have made homes less affordable.
Some economists were predicting that the drop in mortgage applications might be a short term phenomenon. But it appears that the impact might last longer as we continue to face tepid employment growth with December 2013 as one of the worst for job seekers.
As a rule of thumb, it is said that 1% increase in mortgage rates lowers the affordability down by 10%. So the present increase in mortgage rates has just made homes about 10% more costly for the home buyers. This would force the consumers tighten their purse strings.
So, if you are a seller in this market and will need to make certain you don’t over-price your property or it will stay on the market. And if you are buyer in this market, you have to make darn sure that you are not over-paying for your home since the market slow down could continue well into 2014.