On the surface, it seems the housing market has withstood the first barrage of higher mortgage rates. However, from within the institutions that make mortgage loans, there are signs that the foundation of the housing market may be growing weaker.
For consumers, this means that the financial hurdle of higher mortgage rates may soon be compounded by practical difficulties in obtaining a loan, but prepared home buyers can overcome these obstacles.
So far, all the quantitative signs are that the housing market has settled nicely into a new state of normalcy after the initial surge in mortgage rates. After all, low mortgage rates are hardly a thing of the past. Freddie Mac reports that 30-year fixed mortgage rates ended August just above 4.50 percent - up from the super-low mortgage rates of recent years perhaps, but still very low by historical standards. Perhaps just as significantly, the rise in rates seems to have leveled off in recent weeks.
Meanwhile, the latest figures from the US Census Bureau show that new residential building permits, housing starts, and housing completions all continue to show double-digit increases year-over-year. This suggests that so far, the housing recovery is forging ahead despite the rise in mortgage rates.
Reality Sinking In
Some major mortgage lenders, however, feel that the reality of higher mortgage rates may just be starting to sink in. Bloomberg and the Wall Street Journal are reporting that Wells Fargo, J.P. Morgan Chase, and Bank of America are among the banks anticipating a sharp fall-off in mortgage lending activity going forward.
This pessimism from major mortgage lenders can become a self-fulfilling prophecy. As lenders anticipate a fall-off in volume, they cut jobs in their mortgage departments. In turn, those down-sized departments have less capacity to make loans, so volume may fall regardless of what happens to demand.
Consumers Can Take Action
The warnings from mortgage lenders mean that not only do consumers face higher mortgage rates, but they may soon run into a bottleneck at the bank when they apply for a loan. If you were planning on getting into the housing market, here are some actions you can take to fight your way through these obstacles.
- Get active. You'll make your best decisions about properties and mortgages if you actively shop around. Thorough house hunting is the best way to get a feel for your local market. Comparing mortgage rates will help you identify the most competitive lenders. This is the kind of knowledge that will put you in a position to make a decision.
- Investigate your credit history. House hunting takes time, but while that's going on you need to make sure there are no snags in your credit history. If you wait until the back end of the process to discover a problem, you might miss an opportunity to grab a bargain house or a low mortgage rate. Identify and resolve any problems before you get to the mortgage application stage.
- Get your information together. Even before you are ready to apply, talk to a mortgage lender about what information and documents you'll need for the application. If you have your financial records and employer and bank reference information ready to go, it should expedite the application process.
- Be decisive. The point of laying all this groundwork is so you can be decisive. If you understand the local real estate market, the mortgage environment, and the application process, you will feel confident when it comes time to pull the trigger. In a changing market, hesitation means missed opportunities.
Low mortgage rates continue to create attractive opportunities for home buyers, but with rising rates and reductions in mortgage lending capacity, the window of opportunity may be closing.