High Interest Rates & Low Mortgage Applications Are Good For Homebuyers — Here’s Why

Asian family buy new house.
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When it comes to home buying, the market has been so competitive that purchasing a house seems beyond the reach of many prospective owners. Despite alarming interest rates and house prices, now just might be the right time for you to purchase — simply because others aren’t.

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For the first time in seven years, the 30-year mortgage rate surpassed 5% in April and home prices jumped 19% between Jan. 2021 and Jan. 2022. In March, the median price for active home listings was $405,000 — the highest point on record, according to Realtor.com.

The latest consumer price index reading clocked in at 8.5%, the highest rate of price growth since Dec. 1981. People are feeling the pinch at the grocery store, where the cost of meat, poultry, fish and eggs is up nearly 14% compared to last March. And at the gas pump, a gallon of unleaded is now topping $5 in some cities.

There are few upsides to increased interest rates on mortgages and runaway inflation, but the current economic state may force lenders to ease their financing standards to attract more buyers. In other words, the current economic climate may provide opportunities for those borrowers previously shut out of term financing.

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For the week ending April 15, overall mortgage applications dropped 5% on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association (MBA). Likewise, both refinance and purchase applications were 8% and 3% lower than the previous week, respectively. Both percentages are significantly lower compared to the same time last year.

We might see lenders being much more forgiving in approving larger loans, but borrowing more than you can afford is a dangerous play. Potential buyers still need to balance their existing debt, available income and spending principles before signing on to a mortgage.

Opening mortgage applications might give those with lower credit scores the opportunity for a home loan approval as well. According to an Inside Mortgage Finance federal mortgage data analysis, Fannie Mae and Freddie Mac approved almost 17% of loans for individuals with credit scores between 620-699 in the first quarter of this year. This is a 9.4% increase from 2021’s first quarter. That being said, credit applications haven’t become overly loose, per MBA VP Joel Kahn.

“Credit availability has gradually trended higher since mid-2021, but remains around 30% tighter than it was in early 2020,” Khan said in a March credit availability report.

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Regardless of volatile economic trends and a murky interest rate and housing price outlook, you might be able to work borrowing to your advantage and make home ownership a reality in 2022.

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry.

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