High inflation and Covid are destroying the dreams of many who want to have a home, credit card and mortgage experts warn.

That’s because the pandemic has driven many Americans deeper into card debt since 2020. And that, along with rising interest rates and inadequate housing stock, are reducing the number of new mortgages, experts say.

“Overall, I would say they are declining. Refinances have slowed down because most people have already refinanced to lower rates,” Linda McCoy, board president of the National Association of Mortgage Brokers (NAMB), recently told me for a story I was doing for InsideSources.

Not Enough Casas, Senor!

McCoy said another issue is not enough inventory.

She added the refinancing boom is over but people still “want to add to their house, upgrade and need to consolidate bills.”

U.S. mortgage applications declined 8.1 percent in the week ended March 18th, according to the Mortgage Bankers Association (MBA). This followed a 1.2 percent decline in the previous week.

That happened, MBA officials noted, as mortgage rates were the highest in three years. Applications to refinance a home loan declined 14.4%, while those to purchase a home edged down 1.5%, according to the MBA.

“The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve,” said Joel Kan, an MBA economist.

So Many People, So Much Red Ink

Another part of the problem of the declining home mortgage market is excessive debt, experts say.

“Some 30 percent of Americans saw an increase in credit card debt over the last two years, driven primarily by inflation and loss of income,” according to a LendingTree.com study:

[How the pandemic affected debt levels of Americans | LendingTree]

This was “a tale of two pandemics,” according to the study, which surveyed some 1,250 consumers and their spending habits over the course of Covid, the study said.

While 30 percent of respondents went deeper into debt, the same number in the two-year period reduced their card debt, according to the study. It looked at how Covid affected finances over the past two years, LendingTree said.

Yes, I’ll Charge That

Why did some descend deeper into credit card hell?

About half cited inflation and 34 percent cited income loss as the primary factors in driving them deeper into debt.

“Inflation has been such a massive story and placed such hardship on so many Americans that it makes sense that it would be at the top of the list,” says Matt Schulz, chief credit analyst with LendingTree. “We’ve seen many cases where folks have overspent to make up for how crummy the last two years have been,” he added.

And these high credit card bills can have a dramatic effect on whether a bank will give someone a mortgage.

Want a House? What’s Your Credit Score?

How much you use your credit card is important in obtaining a home loan, say card and mortgage experts, because it can greatly change your credit score.

“If one has a $5000 credit card limit,” McCoy adds, “try to keep that balance below $1,500. Typically, the lower your credit scores are, the higher a buyer’s interest rate could be, or they potentially may not be approved at all,” according to Bill Hardekopf. He is a card industry analyst with MoneyCrashers.com.

Hardekopf emphasizes that it is important to have a strong payment history.

“The second biggest element in your credit score is your credit utilization; it accounts for 30% of your credit score,” Hardekopf said.

“This is the amount of debt you have divided by the amount of credit available to you,” he added.

Are You Under or Over 30 Percent?

“Consumers should aim to make this under 30%. If the only credit you have is your credit card and your credit utilization is well above that 30% threshold, your credit score will be negatively impacted by your credit card debt and you may not get that home loan,” he says.

Hardekopf gives an example of someone who will have trouble getting a mortgage under the 30 percent rule.

“So if you have $4,000 in credit card debt and your available credit card debt is $6,000. You’re using 67 percent of your available credit,” he explains. That, Hardekopf adds, will mean one is unlikely to obtain a mortgage.

“Mortgage brokers,” McCoy notes, “look at a buyer’s debt to income ratios. We evaluate their qualifying income and credit scores along with the content of their credit report, how much money they plan on putting down and job stability. It all boils down to the more they owe, the less home they will able to afford.”

Will This Be an Expensive Loan?

And the priciness of the loan directly relates to the interest rate, which is a key factor in ensuring payments are bearable, according to McCoy. While interest rates, long term are now projected to go up several percentage points over the next few years to ensure inflation doesn’t become unmanageable, McCoy notes that just a half a percent can dramatically change a 30-year loan.

This, she adds, can cost a homeowner tens of thousands of dollars over the life of a loan.

For instance, McCoy says that the difference of just a half a percent, 4.5 percent versus 4.0 percent, on a $200,000 loan over thirty years can amount to some $21,000.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post.