Mortgage Demand Hits 25-Year Low

The Federal Reserve has raised interest rates six times in 2022 which has pushed 30-year mortgage rates to the highest levels they’ve been in over 20 years. This has led to a massive decline in mortgage demand hitting a 25-year low, mortgage demand is down 4% week over week and 38% year over year.

Why Mortgage Demand Is Down 

Interest rates are pushing some buyers out of the market due to affordability, which is also pushing out a lot of potential refinances due to the higher interest rates we're seeing right now.

Rates are now back in line with what we have seen historically dating back to the pre-2000 years. This chart shows we're back to rates that we have really been seeing for most of the country’s history instead of the historically low interest rates we've experienced over the last couple of decades. So the question is, are we going back to normalcy with interest rates or are we going to see a refinancing boom over the next couple of years?

Refinancing Boom

I personally think we'll see a refinancing boom. The reason for that is due to this GDP chart. That is exponential growth over the last decade and really the last several years. With that record increase in debt, the Fed is the largest borrower of this debt. Basically, the interest rates that they are charging themselves are unsustainable at that debt level.

Most economists are predicting that they will have to decrease those interest rates over the next year, maybe a year and a half or two years, but at some point in the near future those rates are going to have to come back down.

Matt’s Advice

Here are my recommendations during this low demand and higher interest rates market that we're in right now.

One thing that we're not recommending, and a lot of people are looking at doing right now, is we do not recommend buying down your interest rate. The reason for that is going back to that GDP graph. We expect that interest rates will start to come back down, in my opinion definitely within the next 1 to 2 years, so you wouldn't want to buy down a rate just to refinance in another year or two. If you think we're going back to historical interest rates and interest rates are going to stay high for the next decade, that's when you would want to buy down the rate.

With those predictions in mind, we are recommending a couple of options. First, we're recommending looking at adjustable rate mortgages. Go ahead and look at getting that lower interest rate today versus a 30-year fixed rate since you're not likely to need that 30-year fixed rate for the full 30 years due to a potential refinance scenario. Second, if you believe interest rates will come down over the next 1 to 2 years and you're able to take on that risk, ARMs are a great option to consider.

Another option to consider is during this period of more motivated sellers, asking the seller for a 2-1 Rate Buy Down. A 2-1 Rate Buy Down lowers the interest rate from the current rate down 2% less the first year and then 1% less the second year. For example, if today's rates were 7%, the first-year rate would be 5%, and the second-year rate would be 6%. Then when it resets to 7% in year three, based on most predictions, you would likely be looking at already refinancing that home.

With those recommendations in mind, marry the home and date the rate. Buy the home you want, then look to refinance over the next couple of years.


Posted by Matt Curtis on


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