Mortgage lenders are working overtime to drum up new clients these days, and they have a bit of good news to share with their potential customers. Thanks to the Federal Reserve beginning to cut interest rates, mortgage rates have started falling again over the summer. That’s good news for borrowers who are in the market to buy a house. Yet despite the lower cost of financing, mortgage applications have plummeted. Is that a sign that the housing market is all tapped out?
The average mortgage rate on a 30-year mortgage today is about 3.5%, the lowest it’s been since late 2016. That could save the average American homebuyer tens of thousands of dollars over the length of a mortgage. Yet despite those lower rates, interest in mortgages has not been stimulated. Most weeks mortgage applications have been declining.
Some of that is likely due to high prices that continue to keep many homebuyers on the sidelines. The prospect of paying thousands of dollars per month on a mortgage, particularly now that the economy is showing signs of weakness, is a daunting one for many consumers. Those on the margins, who would just barely be able to afford a mortgage, or whose job prospects may be in jeopardy if the economy weakens, are likely among the first to decide to hold off and wait for the future.
That’s likely what we’re seeing today, as the financial position of households declines and the increasing amount of debt burdening those households increases. The last thing most households need is to take on 30 years of continuing debt.
It will be interesting to see just how far interest rates will fall, particularly as the Federal Reserve seems set on continuing to cut interest rates in the future. Will mortgage rates continue to fall, mirroring the fall in Treasury bond rates? The lowest mortgage rates have ever been was 3.31% in 2012, so what would happen if rates were to fall below that level? Would that spur increased demand to buy houses, or is the economy so weak and are housing prices so high that even record-low mortgage rates won’t convince homebuyers to re-enter the market?