U.S. Real Estate Demand Falls as Prices Rise

Property in the United States is getting more expensive and demand for real estate is falling even when mortgage rates remain at record lows.

A flurry of indicators suggests that the real estate market in the U.S. is slowing due to steady price gains, while mortgage-refinancing activity is slowing, as interest rates have remained tightly range-bound in the past few years.

Property in the United States is getting more expensive and demand for real estate is falling even when mortgage rates remain at record lows.

A flurry of indicators suggests that the real estate market in the U.S. is slowing due to steady price gains, while mortgage-refinancing activity is slowing, as interest rates have remained tightly range-bound in the past few years.

According to the Mortgage Bankers Association, weekly mortgage applications fell 7% on a seasonally adjusted basis in the week ending February 6, although refinance applications remain much higher than they were throughout 2014. Still, the activity is far below its highest points in 2012 and early 2013, when record-low rates spurred refinancing activity nationwide. The rise in refinancing is largely attributed to changes in FHA insurance requirements, which makes these loans more affordable for applicants.

Purchase applications have moved up slightly, but remain far below levels seen in 2012 and 2013. Loan requests for purchasing a home fell 6.5%.

The MBA said average 30-year fixed rate mortgages rose five basis points to 3.84%, the highest level so far for 2015, despite the fact that U.S. Treasury yields have fallen throughout the month of January.

Home Prices Rising

Two separate studies saw home prices rising nationwide, with rents also rising at a robust pace.

According to housing website Trulia, asking home prices rose 7.5% year-over-year and 0.5% month-over-month in January. While housing prices have risen since the crash in 2008, Trulia economist Jed Kolko says the price rises are not limited to a recovery in these areas, as they largely were in 2010-2012. “The biggest home price increases are not necessarily in markets that had more severe housing busts. But the metros where home prices are now rising fastest are, almost without exception, the ones with faster job growth,” he said, adding that economic growth is driving the trend.

“Among the 10 metros with the biggest year-over-year price increases, nine had at least 2% year-over-year job growth. Only Detroit made the price growth top 10 despite tepid job gains. Plus, among these 10 metros with fastest price growth, four – Houston, Indianapolis, Denver, and Austin – had notably mild housing busts, with price declines from the peak of the bubble to the trough of the recession of less than 10%.”

Separately, FNC Inc., a real estate technology firm, noted that property prices rose 5% year-over-year in December, largely in-line with separate indices such as the Case-Shiller index. The FNC’s compilation of 100 metropolitan areas saw a 5% year-over-year increase, while the smaller 10-area composite, which tracks price gains in only large cities, saw a 4.4% year-over-year gain in prices.

Many economists expect home prices to continue to see modest gains in 2015, but stagnant wages may limit how far and how fast those gains can go.