Jerome Powell, Chairman of the Federal Reserve, announced that it would be raising the target federal funds rate by a quarter point, much to the chagrin of many. This increase in the Fed’s interest rates will reverberate throughout the rest of the economy, and is likely to result in further increases in interest rates for mortgages in particular. This is meant to help combat inflation, which remains above target levels.
Demand for refinancing increased substantially in the second week of July, with applications to refinance a mortgage increasing by 7% compared to the previous week. However, this is still substantially lower than it was at the same time last year, indicating that people are still reluctant to commit to refinancing. This is due in no small part to high interest rates, which make the prospect of refinancing a mortgage far less appealing for many.
Cities across the East Coast of the United States are examining the potential of converting vacated office buildings into apartments for people to live in. This is meant to address both the lack of availability of housing, as well as dealing with the large number of office buildings that now sit empty or minimally occupied. However, while office to apartment conversions may seem efficient on its face, there are a number of significant hurdles that will need to be overcome before these plans can be implemented.
The residential real estate market has been suffering extensively from a housing shortage that has driven prices up dramatically. According to the National Association of Realtors, the amount of homes available for purchase is only half of what it was in 2019. This housing shortage has especially affected lower income households, which have had a harder time than ever finding affordable homes. As a result, there is a substantial amount of demand for housing that has not been met.
Demand for mortgages has fallen for a month straight, despite mortgage interest rates retreating from their previous highs. This drop in mortgage applications is attributed to a number of factors, including interest rates still being significantly higher than they were in previous years, as well as a continuing lack of available inventory for purchase. Refinancing applications also remain low, due in no small part to high interest rates making refinancing an unappealing option.
Housing sales fell by 3.4% between March and April as a result of uncertainty in the housing market, with many prospective buyers concerned about the effects of high prices and ever-shifting interest rates. Although prices have fallen somewhat since the beginning of the year, homes remain substantially more expensive than they were at the same time last year, with many homes outside the realm of affordability. Thus, it seems that many homebuyers are waiting for a more stable market that can better suit their needs.