Rising Interest Rates May Be Cooling the Housing Market

March 2, 2021

A combination of scant inventory, high demand, and record-low mortgage rates have combined to give the housing market a big boost in recent months. Now, with interest rates on the climb, demand may be subsiding.

Average mortgage interest rates rose at the fastest pace in over a year last week, climbing from 3.08% to 3.23% for 30-year fixed-rate mortgages. This is resulting in flattening demand. Total mortgage application volume was up just 0.5% for the week, according to the Mortgage Banker’s Association. Applications to refinance were up just 0.1% for the week and up just 7% from a year prior. For comparison’s sake, in December, refinance applications were up more than 100% year over year.

With expectations for strong economic growth and inflation on the horizon, mortgage rates are expected to continue to remain above recent lows. This exacerbates the existing affordability problem in the housing market. Strong demand, low inventory, and now pricier mortgages are expected to continue to price out buyers, especially at the lower end of the market.

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