Home News Skyrocketing inflation is raising mortgages, putting first homes out of reach – The Hill

Skyrocketing inflation is raising mortgages, putting first homes out of reach – The Hill

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  • The consumer price index, released by the Labor Department on Thursday, inflation has risen It increased by 0.4% and 8.2% in September over the last 12 months.

  • The latest report is likely to put pressure on the Federal Reserve to raise rates again, a trickle-down effect that could lead to higher mortgage rates.

  • These rising costs, along with the prospect of a weakening economy, are putting pressure on both lenders and buyers.

A new report showing that inflation rose again in September is just the latest bad news for new homebuyers.

The latest news has put lenders already on the brink amid a grim economic outlook, looking to further cut costs and avoid mortgages that could lead to delinquency.

As a result, buyers will find it increasingly difficult to obtain a loan that will allow them to purchase a quality home at very high prices and mortgage rates.

Buying a home in January 2021 required about 19% of the median household income to buy the average home, said Andy Walden, vice president of enterprise research at data analytics firm Black Knight. he told The Hill.

“Now, with 30-year interest rates approaching 7%, it takes more than double the same median household income to pay the mortgage on the same average home purchase, 39%,” Walden said in an email. says. “It’s just not affordable for many potential buyers, and it’s just greatly reduced the pool of potential buyers in the market.”

The consumer price index, released by the Labor Department on Thursday, inflation has risen It increased by 0.4% and 8.2% in September over the last 12 months.

The latest report is likely to put pressure on the Federal Reserve to raise rates again, a trickle-down effect that could lead to higher mortgage rates.

Interest rates are already at 16-year highs, with an average fixed for 30 years mortgage interest rate Mortgage Bankers Association (MBA) data showed it jumped to nearly 7% last week, more than double what it was a year ago.

The Federal Reserve’s fight against inflation has resulted in several big rate hikes over the summer. This had already cooled the housing market significantly after two years of pandemic boom.

Mortgage availability fell for the seventh straight month and hit its lowest point since 2013 last month. A decline in the index means tighter credit standards, while a rise indicates looser credit.

“The appetite for lower credit scores and higher LTVs has diminished with the potential for a weakening economy leading to higher delinquencies. [loan-to-value] MBA’s vice president of economic and industry forecasts Joel Kan said in a statement earlier this week:

Rising interest rates have also reduced applications for both new mortgages and refinancing options. Mortgage applications fell 2% from the previous week, according to data released by the MBA on Wednesday. Applications are down 39% from the same point last year.

The Federal Reserve’s interest rate hikes have actually pushed home prices down in recent weeks, but the average house value At $357,810, up almost 15% from the same period last year, according to real estate firm Zillow.

And when monthly mortgage rates are skyrocketing, falling home prices aren’t doing much for first-time homebuyers.

According to Zillow’s Mortgage Calculator, if the buyer can secure a down payment of $71,562, the monthly total cost of a 6.81% 30-year fixed rate mortgage is about $2,400.

These rising costs, along with the prospect of a weakening economy, are putting pressure on both lenders and buyers.

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Lenders typically evaluate an applicant’s three C’s, Jason Sharon, owner and broker of Home Loans Inc, tells The Hill.

These represent capacity, character, and collateral. Or whether the person has the income to support the new debt, has a good enough credit score, or whether the property the buyer is looking to purchase is worth the amount the buyer is looking to rent.

Sharon said the biggest stressor in the current market is the ability of buyers to shoulder the new debt. Interest rates and home prices have made monthly payments so high that even borrowers who qualify for a mortgage under normal economic conditions may exceed their allowable monthly debt-to-income ratio.

“The stress in today’s market is the ‘monthly payment’, which is part of the debt-to-income ratio. Combined with the recent spike in interest rates and his two years of rising home prices, many are either completely devalued from the market or their current entitlements don’t meet their needs. [or] Desire,” Sharon said in an email.

Ira Rheingold, executive director of the National Association of Consumer Advocates, said she hadn’t seen tightening of lending standards, but broadly agreed with Sharon.

“I think houses are simply too expensive. People aren’t saving enough money. Interest rates are going up,” Rheingold said.

“And I think that’s why there’s not a lot of mortgages going on. It’s not that it’s hard for an individual to get a mortgage. is difficult for individuals,” Rheingold added.

In the event of an economic recession (a growing concern for policymakers and business leaders), lenders may shy away from riskier loans.

Banks don’t want to lend to people who can’t pay them back.

“All major recessions have leading indicators of rising unemployment. Usually unemployment is very low and then gets worse. I can’t,” Sharon continued.

If the economy weakens further, the number of denied mortgages could increase.Consumer Financial Protection Bureau data rejection rate The rate of home purchase applications in 2021 is 8.3%, down 1 percentage point from the previous year.

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