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Mortgage Demand Declines Amid Persistent High Interest Rates

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Mortgage Rates Remain Stable as Homebuyers Struggle to Enter the Market

Decline in Mortgage Applications Caused by High Home Prices and Interest Rates

Mortgage rates remained unchanged last week, staying near a recent high. This stability has caused more potential homebuyers to be unable to enter the market due to rising home prices. According to the Mortgage Bankers Association, total mortgage application volume dropped 1.8% compared to the previous week. The average contract interest rate for 30-year fixed-rate mortgages also remained unchanged at 6.87%.

Purchase Activity Decreases, FHA Applications Drop

As a result of the high mortgage rates, applications to purchase a home decreased by 3% last week. Compared to the same week one year ago, purchase applications were 23% lower. This decline was partially driven by a 10% drop in FHA applications. The Federal Housing Administration, which offers low down payment loans, is more popular among lower-income buyers who are finding the market less affordable. As a result, the average purchase loan size has increased, reaching its highest level since May.

Refinance Applications Flat, Borrowers Opt for Second Home Equity Loans

Applications to refinance a home loan remained essentially flat and are 30% lower compared to the same week one year ago. Many borrowers currently have interest rates that are lower than the current rate, making them ineligible for refinancing. Instead, borrowers who wish to take cash out of their homes are choosing second home equity loans to avoid losing their primary loan rate.

Mortgage Rates Move Higher, Potential Impact of Federal Reserve Decision

Mortgage rates moved higher at the start of this week, with rates crossing over 7%. This increase may be influenced by the recent interest rate decision and press conference held by the Federal Reserve. It is widely expected that the Federal Reserve will increase its benchmark interest rate by 0.25%. However, it is important to note that the Fed Funds Rate does not directly dictate mortgage rates. Mortgage rates can move lower or higher regardless of the Fed's decision, depending on comments made by Fed Chief Jerome Powell regarding the Fed's policy stance.

Conclusion: The Impact of Stable Mortgage Rates on New Businesses

The stable mortgage rates coupled with the struggles faced by potential homebuyers in entering the market can have both positive and negative implications for new businesses. Here's a "hot take" on how this topic may impact a new business:

Positive Impact: Increased Demand for Rental Properties

With rising home prices and high mortgage rates, many individuals and families are finding it increasingly difficult to purchase a home. This has created a growing demand for rental properties, which presents an opportunity for new businesses in the real estate industry. Investors can capitalize on this trend by developing and renting out properties, offering attractive rental options to those who are unable or prefer not to buy. Additionally, property management services can thrive as renters look for professional assistance in finding and maintaining their rentals.

Negative Impact: Limited Disposable Income for Other Purchases

Higher mortgage rates and increased home prices can result in potential homebuyers redirecting their funds toward housing expenses, leaving them with limited disposable income for other purchases. This can negatively impact various sectors, such as retail, dining, and entertainment. New businesses catering to these industries may face challenges in attracting customers and generating revenue. However, creative marketing strategies, targeted promotions, and offering unique experiences may help new businesses stand out and entice consumers despite their limited disposable income.

Overall: Adaptation and Innovation are Key

The impact of stable mortgage rates on new businesses ultimately depends on the industry and the ability to adapt to the changing market dynamics. While some sectors may face challenges, others can thrive by recognizing and capitalizing on emerging trends. New businesses must be agile, innovative, and responsive to consumer needs. By identifying the demands and constraints of potential homebuyers, entrepreneurs can adjust their strategies accordingly and position their businesses for success in this challenging landscape. In conclusion, while stable mortgage rates may pose obstacles for potential homebuyers, new businesses can find opportunities by catering to the rental market and focusing on adapting their offerings to fit the evolving financial priorities of consumers. By remaining nimble and strategic, entrepreneurs can navigate this complex landscape and build successful ventures even in the face of a challenging real estate market. Article First Published at: https://www.cnbc.com/2023/07/26/mortgage-demand-drops-as-interest-rates-remain-stubbornly-high.html

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