What a dip in mortgage demand means

Some lenders predict short-term cooling effect on market

Some mortgage lenders across South Florida are seeing a substantial decrease in the number of applications — as interest rates hit their highest level since the start of the housing boom.

Lenders are seeing the effect of interest rates as they receive fewer purchase applications. “We definitely had a dip across the board on applications,” said J.C. de Ona, the southeast division president of Centennial Bank. According to numbers from his bank, recently they’ve seen a 20% to 30% drop in purchase applications.

Craig Garcia, with Capital Partners Mortgages in Coral Springs, said that applications with them over the past two months have declined 30% when compared to the previous year.

Pat Sheehy, chief executive officer of Hamilton Home Loans, said that South Florida mortgage purchase applications have been mixed at their branches: Some have seen increases, while others have remained relatively flat.

In Florida, purchase applications haven’t risen as much as they did last year, numbers from the Mortgage Bankers Associations shows. From February to March this year, applications rose 3%, a slight decline from last year’s purchase-application volume. From February 2021 to March 2021, purchase applications rose nearly 5%.

Data from the Mortgage Bankers Association, which releases a weekly survey on purchase and refinance applications, shows that for the past month, each week has seen a decrease in purchase applications from the year before.

“In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase demand as well. Home purchase activity has been volatile in recent weeks and has yet to see the typical pickup for this time of the year,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Effect on region’s housing market

For the most part, mortgage lenders believe the high interest rates could have slight cooling effect on the market for some people, as the higher rates stretch many prospective homebuyers’ budgets.

With interest rates on the rise, many buyers are limited by what they can afford because a higher interest rate could correlate to a higher cost, which in turn limits their purchasing power, Garcia explained.

“I do think demand has slowed, but the nature of the market hasn’t really changed that much. There is still an imbalance with the amount of supply quite a bit less than the demand,” Garcia said.

Experts say the biggest effect could happen in the second home market, since there is not as much pressure to land a second home as there is for buyers looking for a permanent home, said Sheehy.

However, it remains to be seen if interest rates will continue to increase at the same pace through the rest of the year and whether it will cost more buyer hesitancy.

“Here’s the problem: We’ve been in such a low-rate environment that we forgot historically rates were much higher,” de Ona said. “The initial shock of this movement of rates is going to have a short-term impact. People will start to normalize rates as time goes on.”