Even though mortgage interest rates here in the US dropped to the lowest they have been since last November, it had little or no effect on people either applying for new mortgages to buy a home, or refinancing to carry out renovations or improvements on existing properties.
Whereas this time last year the total number of applications for new mortgages measured against the previous year rose by 22%, this year it went up by a meagre 0.1%, even after seasonal adjustments were taken into account.
It is most unusual. A fall in the mortgage rate normally prompts people into action – especially those refinancing. However, with refinancing applications only 2% higher, as opposed to 40% higher 12 months ago, the reluctance to commit to additional finance is plain to see.
One of the problems is that once rates reach rock bottom (which is pretty well where they are right now) the only way is up. When we are talking big numbers, as we usually are in terms of mortgages, even small rises can have a significant effect on people’s finances.
The fact of the matter is that the fall in interest rates pales into insignificance when viewed alongside the ongoing, sharp rise in the cost of buying a property. There is also the fact that there is a shortage of homes for sales. But, it’s not all doom and gloom. Although the new mortgage application rate fell by 2% last week, it is nonetheless approximately 10% up on the same period last year.
A sure indicator the folks are not coping with the house price rise is the sudden increase in the number of people lodging applications for adjustable rate mortgages. This type of mortgage offers lower interest rates. The take-up is 13% higher than it was 12 months ago.
The type of mortgage that many young, first-time buyers who have limited funds go for, is one insured by the Federal Housing Administration. Demand for this kind of mortgage rose by only 4%; another clear indicator that the impetus is slowing right down.
Of course, there is also the fact that confidence in the world stage is being shaken by the uncertainty regarding the North Korean situation. One result of this fear, according to Matthew Graham, CEO at Mortgage News Daily is that investors are getting out of bonds and into stocks and share.
This could be a good time for more young Americans to take out a Roth Individual Retirement Account or IRA for short. Like its near British equivalent, the Stocks and Shares ISA, an IRA is a tax-free savings vehicle.
IRAs may not be quite as flexible as the British near equivalent in terms of penalties for early cash withdrawals. However, on the positive side, with an IRA (Roth or non-Roth) you can still take out $10,000 without penalty, a very useful sum if you are a first-time buyer trying to scrape together a deposit on a property. Another plus is that what you put into your ISA each year, is tax deductible.
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