Housing boom could slow down as weekly mortgage demand falls again

Housing boom could slow down as weekly mortgage demand falls again


A real estate agent with an “Open Doors” sign in the front yard of a house for sale.

Ty Wright | Bloomberg | Getty Images

High prices and low supply are finally reducing some of the heat in the real estate market.

Even with interest rates falling slightly, mortgage application volume fell 4% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. It has fallen to its lowest level since February 2020.

Mortgage applications for the purchase of a home are down 3% for the week and 2% less than a year ago. This is the second week in a row that demand to buy is lower than a year earlier, even though mortgage rates are still lower.

Pending home sales, which are counted by signed contracts and are therefore an indicator of future closed sales, fell 4.4% more than expected in April, according to the National Association of Realtors.

Buyers are clearly starting to hit a wall of affordability. This is particularly clear from the government’s loan request. FHA and VA loans offer low or even no down payment options for borrowers with lower incomes and lower credit scores.

“Tight housing stock, obstacles to a faster rate of new construction and rapidly rising home prices continue to dampen buying activity,” said Joel Kan, MBA economist. “The government purchasing index has fallen to its lowest level in over a year and has now declined year over year for five straight weeks.”

The average contractual interest rate for 30-year fixed rate mortgages with compliant loan balances ($ 548,250 or less) decreased to 3.17% from 3.18%, with points dropping from 0, 39 to 0.35 (including set-up fee) for 80% of the loan-to-value ratio. This rate was 20 basis points higher a year ago.

The drop in rates did not ignite the demand for refinancing. These requests were down 5% from the previous week and were only 6% higher than a year ago. The refinancing share of mortgage activity fell to 61.3% of total applications, from 61.4% the previous week.

“Even though rates were below 3.20% over the past month, they are still around 20 to 30 basis points higher than the all-time lows at the end of 2020,” Kan said.

The refinancing boom in the second half of last year left fewer borrowers able to refinance now.

Mortgage rates hold to start this shortened vacation work week, but economic data released later this week could change that. The all-important monthly jobs report for May arrives on Friday, and depending on the result, rates could swing in either direction.

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