Neighborhood Inscope

Mortgage Applications Fall To 18-Year Lows Putting More Pressure on Denver Area Home Prices

By Dr Denver H. Bubble

Thu Oct 18 2018

After falling 2.1% the prior week, mortgage applications plunged 7.1% last week as mortgage rates surged above 5%. Excluding two major falls during the Christmas week of 12/29/00 and 12/26/14, this is the lowest level of mortgage applications since September 2000. The seasonally adjusted Purchase Index decreased 6% from one week earlier. 

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since February 2011, 5.1% from 5.05%. The Fed is on pace to keep on hiking rate so even higher rates are scheduled for the future.

Naturally, hardest hit by the rising rates will be young and first-time buyers who tend to make smaller down payments than older buyers who have built up equity in their previous homes, and middle-income buyers, who can least afford the extra cost. 45% of the loans that Freddie Mac is backing are to first-time buyers, up from about 30% normally, which also means that rising rates could have an even bigger impact on the Denver housing market than usual.

Younger buyers are also more likely to be set back by higher rates because they do not remember when rates were more than 18% in the early 1980s, or more recently, the first decade of the 2000s, when rates hovered around 5% to 7%. This should definitely continue to put downward pressure on home prices and continue to deflate this housing bubble.

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