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With Interest Rates Up and Mortgage Applications Down, Housing Prices Likely to Level Out

We are likely in the early stages of a significant housing market contraction, the size of which hasn’t been seen since 2006.

This is according to Len Kiefer’s—Freddie Mac’s deputy chief economist--recent Twitter thread. “It hasn’t shown up in many data series yet, but mortgage applications are pointing to a large decline over summer,” Kiefer explained.

Let’s look at what this means for mortgages, home purchases, and OnSite Inspections for Consumer Reporting.

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Refinance and Purchase Mortgage Applications Plummet

The housing market is showing signs of slowing, but this does not translate into a decrease in home values. It might, however, make the market at least a little bit less competitive, bringing it more in line with current economic realities.

Of note: purchases and refinance applications are currently at their lowest level in the last two decades—head here for a handy graph that shows the shift. Observe that home-purchase mortgage applications have dropped by nearly 40% since their 2021 high, mostly owing to recent interest rate hikes.

Mortgage application rates are something of a canary in the coal mine for the housing industry writ large. Think of it this way: nearly every successful home purchase begins with a mortgage application. They are the first link in the home buying chain.

With a decrease in applications, a shrinking pool of eligible buyers will be in a position to make bids on homes. Ultimately, this will slow the housing market as there will be less demand/competition to escalate prices.

According to Kiefer, it will likely take one to two months for this to play out.

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Housing Prices: Rocket, Feather, or Something Stickier?

This will not, however, grind home sales to a complete halt, or start dropping home prices. Instead, home prices will likely stay steady and stop their spaceship trajectory into outer space.

“I don’t think that home sales are going to grind to a complete halt,” Kiefer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”

This is because when interest rates go up, house prices don’t tend to fall or rise. Instead, “they tend to be stickier,” Kiefer points out. “And while the rate of growth tends to slow, they don’t tend to fall.”

Compliance for Consumer Reporting More Important Than Ever

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Competition among lending institutions will only increase over the coming year. And with less applicants, so to will competition among consumer report resellers, who will feel the effects of a shrinking borrower pool.

This is why OnSite Inspections for Consumer Reporting are more critical now than ever.

Because being caught out of compliance in a market facing shrinking demand could be nearly fatal to a business. Thankfully, TrendSource is a pioneer and premier provider of OnSite Inspections for Consumer Reporting, which can be conducted in-person or virtually.

Credit report resellers must ensure they remain compliant with federal regulations governing access to and distribution of consumer reporting. TrendSource can help.

Order OnSite Inspections Online

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