Mortgage rates fell last week, but demand for home loans didn’t move higher as a result. Other aspects of today’s housing market are outweighing the benefit of lower mortgage rates right now, namely a lack of supply.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.40% from 6.45%, with points falling to 0.59 from 0.62 (including the origination fee) for loans with a 20% down payment. It had been over 7% just a month ago.
Mortgage applications to purchase a home, however, dropped 4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was 35% lower than the same week one year ago.
“Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season. After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates,” said Mike Fratantoni, MBA’s chief economist.
New listings were down 20% year over year in March, according to Realtor.com, and total inventory was about half of what it was in March 2019, pre-Covid pandemic.
“Although the mortgage rate for conforming balance loans declined by five basis points over the week to 6.40%, the mortgage rate for jumbo loans increased by nine basis points to 6.36%,” added Fratantoni. “While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined.”
Most jumbo loans are held on bank balance sheets.
Demand for Federal Housing Administration and Department of Veterans Affairs loans, which are favored by lower-income borrowers due to low down payment requirements, declined more than those for conventional loans. While there is strong demand from first-time homebuyers, with millennials hitting their peak buying age, affordability is still a challenge right now.
Applications to refinance a home loan also dropped, down 5% for the week and 59% lower than the same week a year ago. The refinance share of mortgage activity decreased to 28.6% of total applications from 29.1% the previous week. Rates are 150 basis points higher than they were at the same time last year, so there are precious few borrowers who can now benefit from a refinance.
Source: cnbc.com
