The housing market is cooling down, mortgage data suggests

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With home prices at record highs and mortgage rates well over 5%, fewer Americans are buying homes – a fact reflected in the most recent mortgage data.

Last week, the Mortgage Bankers Association reported that applications for mortgages fell by 6.5% in just one week. That was followed by a report from property data firm ATTOM showing that residential mortgage origination in the first quarter of this year fell 18% from the fourth quarter of last year.

That’s the largest quarterly decrease since 2017 and down 32% from the first quarter of 2021. While much of the decline was in refinancing existing mortgages, mainly because rates are now the highest in about a decade, it’s clear that there are fewer buyers in the current market.

Deborah Hauser, executive director of the Boston real estate firm Senné, says the combination of rising mortgage rates and rising home prices are hitting first-time buyers the hardest.

“First-time homebuyers represent the largest share – 31% – of people purchasing homes, according to data from the National Association of Realtors (NAR),” Hauser told ConsumerAffairs. “And most first-time buyers are younger than 40, which means the buyer pool is deep, a good indication that demand will remain strong, especially since housing inventory is at historical lows.”

It’s getting harder to buy a home

The new housing market environment requires buyers to have higher incomes and larger down payments in order to purchase a similarly priced home from last December, when interest rates were around 3%. That will price many first-time buyers out of the market because Hauser says lenders are not likely to budge from their strict underwriting standards.

“Processes to prevent mortgage defaults have been in place for a number of years, so we are less likely to see that affect housing and since we are woefully behind in new construction, the demand will continue to outpace supply in the foreseeable future so housing is predicted to remain solid for a number more years,” she said.

If not for the lack of available homes for sale, prices might soften considerably in this environment. Because there are still enough buyers who can afford the higher prices for the limited number of available homes, market experts like Hauser expect that sellers will remain in the driver’s seat for the foreseeable future.