This Mortgage Trend Could Spell Good News for Home Buyers

Young couple holds up new house keys

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The market could open up for one key reason.

Key points

  • Mortgage demand is expected to wane this year as borrowing rates rise.
  • If enough buyers pull out of the market, it could result in a notable drop in home prices.

If you've been in the market to buy a home, you're probably well aware that borrowing rates are way more expensive now than they were all of last year. In fact, over the past three and a half months, mortgage rates have risen at a faster pace than industry experts anticipated.

Last year, the average 30-year mortgage sat at under 4% from January through December. Now, the average 30-year loan is already above 5%. And with additional planned rate hikes from the Federal Reserve, we can expect mortgage rates to climb even more. 

In fact, based on recent movement, it wouldn't be out of the question to see the average 30-year mortgage rate hit 6% before the end of the year. When we combine that with the sky-high prices sellers are demanding today, it's easy to see why buyers might be struggling to purchase homes.

But now, mortgage industry experts predict a major slowdown in home loan originations. And if that comes to be, it could actually spell positive news for those hoping for a shot at buying a home.

Mortgage volume could fall

The Mortgage Bankers Association expects total mortgage originations for 2022 to come in 35.5% lower than they did in 2021. That total includes both purchase mortgages as well as refinances

Clearly, the reason for a decline in mortgage demand stems from higher borrowing rates. But while rising rates aren't a good thing for buyers, lower mortgage volume is, because it indicates that general demand for homes is waning.

A big reason sellers are getting away with commanding such high prices for homes these days is that residential real estate inventory is lacking in a big way. Since there aren't enough homes to meet demand, sellers can raise their prices. 

But if buyer demand starts to decline due to higher borrowing costs, sellers may have to start coming down on their homes prices. And once home prices start trending downward, more buyers could have an opportunity to purchase a place of their own.

A housing crash is unlikely

To be clear, rising mortgage rates and lower mortgage volume aren't likely to result in a full-fledged housing market crash, so sellers shouldn’t stress over that. But should we expect a gradual drop in home prices? That certainly wouldn't be unreasonable.

Granted, as home prices start to come down, mortgage rates could continue to climb, putting buyers in a break-even situation. The hope, therefore, is that prices will fall to a degree that outpaces rising borrowing rates so that buyers benefit in the end.

In March, the national median home listing price rose to $405,000, according to That's a 13.5% increase from the previous year and a whopping 26.5% increase compared to March 2020. 

Even without rising mortgage rates, it's easy to argue that today's home prices just aren't sustainable. But a drop in demand could nudge home prices downward at a time when buyers really need that to happen.

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