Shift in US Housing Market as Mortgage Rates Rise


The US housing market is experiencing a notable shift as older, lower-rate mortgages are being replaced by new borrowing with higher financing costs. This transition is gradually increasing the average loan rate for American homes, according to data from Intercontinental Exchange Inc. (NYSE:ICE).

Rising Mortgage Rates and Market Impact

The ICE Mortgage Monitor Report reveals that four million first-lien mortgages originated since 2022 have rates above 6.5%, with about 1.9 million of these having rates of 7% or higher. “As of May, 24% of homeowners with mortgages now have a current interest rate of 5% or higher,” noted Andy Walden, vice president of ICE Research and Analysis. He added, “As recently as two years ago, an astonishing nine of every 10 mortgage holders were below that threshold.”

This shift in the active mortgage market is attributed to various factors, including aging homeowners, retirement, and life-changing events prompting the sale of homes with older, lower-rate loans.

Housing Decline in Sub-5% Mortgages

“There are 5.8 million fewer sub-5% mortgages in the market today than there were at this time in 2022,” Walden pointed out. This gradual change occurs as borrowers with lower rates sell their homes or, to a lesser extent, refinance to withdraw equity.

The increase in homes with loans closer to the prevailing rate is likely to spur more activity in the real estate market. As more people become willing to relocate for job opportunities or other reasons, the fear of losing a fixed-loan rate mortgage diminishes.

Future Trends and Market Dynamics

Homeowners with mortgages near current rates are also expected to drive the refinance market when the Federal Reserve starts cutting rates, anticipated later this year. This expected trend could lead to increased refinancing activity as homeowners seek to take advantage of lower rates.

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