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Mortgage applications decreasing is a possible sign of housing market cooling off, expert says

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Posted at 4:54 PM, Jul 06, 2022
and last updated 2022-07-07 09:58:34-04

Some good news for the housing market — depending on how you look at it. Mortgage applications decreased by more than five-percent over the past week, according to the Mortgage Bankers Association.

Experts say this could be a piece to cooling off the housing market. The caveat: mortgage rates are high and could grow if the Federal Reserve raises interest rates again.

Six months ago, if you bought a house for $400,000 at a four-percent interest rate, you would pay $1,605 for your mortgage. In July 2022, for a $400,000 home on top of a 5.5% interest rate, which is where we're at now, you're paying more $1,910 a month.

That doesn't include payments for things like property taxes and homeowners insurance.

"We kinda got spoiled with interest rates in that 3% range," said Adrian Waring, a local real estate agent. "We got spoiled with that rate — a bit of a rate shock going on right now."

Waring is seeing the shock first-hand. Interest rates are now sitting around 5.5-6%, though it did fall slightly over the past two weeks.

"But if rates continue to go up, I think that will scare more people," Waring said. "The fact that rates are going to go up rather than prices may be coming down."

Florida Gulf Coast University finance professor, Tom Smythe, says this is having a big effect on our housing market.

"I think we’re already seeing a leveling off of the home purchase market," Smythe said.

While there is some good news, there is a downside. Inventory is still struggling in Southwest Florida. According to Redfin, homes in Cape Coral are going for $436,000 on average.

Waring says this time last year Cape Coral had 400 houses on the market. Today, we're at 1,200 and it should be 50-percent higher.

"We still got a growing population and the population is moving and typically it's buying homes," Smythe said. "It’s a very, very different market now than it was two years ago both because of price increases and rate increases."

Though a different market, the domino effect of the interest rate hike could be a light at the end of the tunnel.

"So the combination of fewer applications with these rising rates — real estate, we should see the real estate market cool off a bit," Smythe said.

If you're looking to buy a home, both Waring and Smythe have tips for you:

  • If you can buy now, go ahead, as interest rates could climb, Waring says
  • Do not refinance right now due to interest rates
  • Smythe says to avoid an adjustable mortgage as it could change depending on the market index.