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Housing market: Mortgage applications fall as interest rates rise

Yahoo Finance’s Ronda Lee joins the Live show to discuss the state of the housing market as well as the decline in mortgage rate applications as interest rates are set to rise.

Video Transcript

AKIKO FUJITA: Another sector under pressure from the market sell-off, as Dan mentioned, Redfin and Compass both announcing layoffs yesterday, cutting 8% and 10% of their workforce, respectively. This as rising interest rates create a drop in demand for mortgages. Here with more, we've got Ronda Lee--

RONDA LEE: Yes.

AKIKO FUJITA: With me here at the desk. I have to tell you, just looking at those rates ticking higher, you certainly get the sense that a lot of buyers who are on the market are saying, well, maybe this is the time to hit pause.

RONDA LEE: Well, as the saying goes, you've got to get in where you fit in. At the beginning of the year, rates were at 3.5%-- 3.45%. And they were saying that, you know, we wouldn't see more than 4% by the end of the year. Well, here we are. We're at 5.23%. So the people who got lucky were the ones that did it last year.

Unfortunately, with the rising rates, first-time homebuyers are kind of-- the affordability thing is messing them up. But even with the pullback, it's-- you know, just like the markets, it only lasts for a minute. So it's kind of correcting itself. The mortgage lenders have done layoffs months before, so it only makes sense that Redfin, Compass, and other places are doing this. If you could recall, Better.com. So it's kind of just the market is cooling off and this is what's happening.

AKIKO FUJITA: So if you look at the mortgage demand compared to a year ago, it is about half of what we saw. But you mentioned something that-- the way to look at this is kind of hibernation, not necessarily--

RONDA LEE: Yes.

AKIKO FUJITA: That this is really going to lead to a significant pullback. You know, what are we seeing in terms of applications? Are we starting to see that reflected in very specific markets?

RONDA LEE: So mortgage applications, particularly re-fi, they're down, which is to be expected. And the reason-- I think re-fis are down 70% from last year, major reason for most of the layoffs with the mortgage lenders. People are now looking at the rising mortgage rates, and they're like, is it worth it for me to enter the market?

So if I sell my house-- most of the time, sellers are your next home-- your buyers. If the mortgage rates are too high for them, they're going to stay-- we talked about, it's called interest rate lock-in. They're staying put, which is leading to the other problem, one of the reasons why everything is kind of funky, the housing inventory. Those sellers are staying put.

So we have the supply chain problem for the new home construction, and we're not having our existing homeowners move out and move up so that whole, you know, mobile-- moving up into the bigger and better home is harder. So that's the main reason why we have this bigger problem. Also, we have the inflation. Nobody saw that on the market, you know? It's impacting people. They got gas, they got fuel, and now they can't get in.

AKIKO FUJITA: Yeah, buyers and sellers both now crunching the numbers as we continue to see the rates tick up. Ronda, appreciate you joining us on set today.