Mortgage Demand Slows, Signals Housing Market Cooldown

investment property mortgage demand

Earlier this month, news outlets reported that mortgage applications decreased, a clear sign that the red-hot housing market is starting to cool down. With housing prices at or near all-time highs, increased mortgage rates are pricing many would-be homebuyers out of the market entirely. This has also led to a decrease in demand for long-term fixed rate investment mortgages and refinances, culminating in the lowest level of new mortgage and refinance applications in the last 22 years.

While mortgage rates are expected to continue to rise as the Federal Reserve Bank continues to hike interest rates to tamp down inflation, housing prices are expected to come down, ideally opening more opportunities for individual homebuyers to purchase their primary residences.

What Does Plummeting Mortgage Demand Mean for Investors?

For real estate investors, a plummeting demand in mortgages can both open an opportunity to purchase properties without much competition from buyers seeking primary residences, and it can also serve as a warning sign for anyone counting on housing prices to remain inflated. As demand for mortgages falls due to interest rates increasing, housing prices generally follow. This can mean price reductions on existing inventory – but it also means that any fix & flip projects in process may now have lower expected ARVs.

However, some experts believe that these decreases in home values may be a bit delayed by the fact that housing inventory remains persistently low in most areas of the country. While prices have gone up by 20-30% in many areas, these decreases are a blip on the radar in comparison – often in the neighborhood of 5-10%.

This is Far From a Housing Market Crash

While prices are seeing some mild cooling, it’s not likely to present a long-term pattern, nor is it expected to come close to rapid deceleration seen in the wake of the 2008 subprime mortgage crisis. Prices may continue to come down a bit in some areas, but with continued inventory issues, housing prices are not likely to come back down to pre-pandemic levels any time soon. While we can’t say with complete certainty that there won’t be an economic event that could upend the housing market, it seems to stand to reason that it’s far from time to panic if you’re an experienced investor.

Long-term investors who refinanced in 2021 are certainly benefitting the most from this hot market, but they’re not the only ones who are capable of turning a profit. There’s still plenty of money to be made within this market, though it may take a more carefully discerning eye to find great deals.

Will Mortgage Interest Rates Continue to Climb?

While we can’t 100% guarantee anything that the future holds, it does seem pretty clear that as inflation continues to rise, so will interest rates. The Federal Reserve Bank has made their plans to hike base interest rates very clear, and until inflation settles down, it doesn’t seem like they’ll be taking any action to reverse these decisions any time soon. As base interest rates climb, so too shall mortgage rates, which will further dampen consumers’ appetites for mortgages unless housing prices come down to a reasonable level.

Until that time, those with the most capital to work with are going to have an advantage over first-time homebuyers, so in a lot of ways, this market favors investors. If you have your eye on a good deal, feel free to get a free online quote or give us a call at 410-855-4600 to discuss your deal with us now!