A watershed moment is defined as “an event marking a unique or important change of course.” The Federal Reserve is tapering and the discount rate is rising, which will continue to put upward pressure on mortgage interest rates, shrinking housing affordability.
During the last week of January, we experienced an interesting occurrence, and it went almost unnoticed. Mortgage refinance applications dropped by 13%, a historically severe fall-off indeed. Of course, it’s perfectly logical, right? As rates rise, fewer mortgage holders would benefit from refinancing, which translates to fewer applications.
But by the time this happened, mortgage rates for a 30-year mortgage had already risen 112 basis points from 2.85% for the same week a year ago to a reported 3.97% national average, up 1.12% compared to that same week. That’s a 39% increase in the cost of housing finance. And it occurred before the Federal Reserve is set to begin tapering their aggressive bond buying this month and prior to the discount rate being raised. These actions will raise rates further in the coming weeks and months.
Why a watershed? Because so many millions of would-be “move-up” buyers have already refinanced their current home loan well below current new mortgage interest rates. This means that the typical move-up buyer, who has traditionally fueled the national housing market with new inventory, will now have to pay a house price premium and a substantial housing finance cost increase. Remember, it was already up 39% over a year ago. This condition is a structural defect in the market and is set to exacerbate the undersupplied housing market challenge.
To verify this, check the difference between the number of new listings being brought to your market for the first 60 or 90 days this year compared to the past two years. Checking markets across the country, we’re seeing a systemic drag on the housing market, with new listings coming to the market showing some significant drop-offs. As of now, it’s down double digits across the country.
As brokers and agents, we need to get busy with our own business development efforts. We need to carry the mindset of navigator of market shifts and not victims of the market. No matter the market conditions, a strong business development discipline will prevail. As one of my mentors said, the markets always have enough business for success; the only question is whether you are doing what it takes for that market to find you.
At United Real Estate offers agents a cloud-based productivity platform called Bullseye, to facilitate new and simplified business development.
Housing turnover rate is slowing, and by equipping our brokers and agents with the right tools, navigation of this watershed moment will provide success in 2022.
Rick Haase is president of United Real Estate. For more information, contact him at Rick@UnitedRealEstate.com or 504-251-3757, or visit www.GrowWithUnited.com.