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Is the Real Estate Boom Over?

Real estate retrenches as mortgage applications plummet 30%.

House hunting used to be so much easier.

For years, buyers looking for a new home were buoyed by low interest rates, a range of flexible options for mortgages, and a wide variety of housing from which to choose.

All those factors were put in place by regulators and local authorities hoping to jumpstart a rebound from the Great Recession.

For the most part, they worked. 

But in some places, they worked too well — creating a bottleneck of too many qualified buyers for too few homes.

That created a perfect storm for a sellers market that got hotter and hotter during the pandemic, when locked-down buyers decided en masse to look for different, permanent or larger homes.

Combine that with some buyers who were boosted by economic stimulus payments and one-time stipends provided by the federal government, and more buyers than ever were leaping into the real estate sector.

However, new data shows that those days are over. 

With recent actions by the Federal Reserve pushing mortgage rates above 5% or more, mortgage applications have dropped by a third.

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Is The Real Estate Boom Over?

On June 22, the Mortgage Bankers Association puts out its survey of weekly mortgage applications, a closely watched metric of how engaged buyers have been in attempting to finance a new home.

Ralph DiBugnara, a real estate authority, mortgage executive and chief executive at Home Qualified, said that the new Fed hikes have affected specific parts of the market substantially.

"We've seen mortgage applications down about 30%," DiBugnara told TheStreet.

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Homeowners looking to take advantage of low rates are now having to think again.

DiBugnara said that refinancing a property has become a major hurdle for some homeowners.

 "Refinancing has been the biggest drop off for mortgage applications, as well as the fact that some homebuyers have been priced out of the market," DiBugnara said.

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What Can Homeowners Expect Next?

The Fed's rate hikes are designed to cool down an inflation rate of almost 9%, which has been pushing prices up across a broad range of sectors and types of products.

So far it has already hit some parts of the real estate market. For the week of June 20, major cratering has appeared in the mortgage market.

"[The weekly mortgage application] index recently hit a 22-year low as refinancing demand plummeted as much as 75% from a year ago," Investopedia reported.

DiBugnara said said that can mean the difference between 3% and even 5% on a $455,000 mortgage [which] is about $500 a month.

When that major monthly cost is added to an increasingly expensive bill for staples like food and transportation, "most people can't afford $500 a month in addition to increased gas costs and other expenses."

"Most of that is due to refinancing not being an option at this point because most of the people that refinanced were able to do so between rates that were in the high two’s to low three’s," he said. "Right now, rates are in the fives and approaching 6%."

He said higher rates and inflation are mixing to create a cocktail of unfavorable economic conditions for both buyers and lenders.

"These are the two reasons we've seen a big drop off in applications,"  DiBugnara said.

"The mortgage market in general is going to be down over a billion dollars in loans closed this year compared to last year," he said, predicting even further dips in that index's numbers.

"This is a significant number, and I believe we’re going to see mortgage applications continue to drop," DiBugnara said.