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Mortgage demand spikes 33% as rates set another record low

PUBLISHED WED, JUL 8 2020

Diana Olick@IN/DIANAOLICK@DIANAOLICKCNBC@DIANAOLICK

KEY POINTS

  • Mortgage applications to purchase a home rose 5% for the week and were a remarkable 33% higher than a year ago.
  • Home prices gains continue to accelerate, so low mortgage rates are giving buyers much-needed help.

Homebuyers rush back into the market as mortgage rates hit new low

After a brief pullback at the end of June, homebuyers rushed back into the mortgage market last week, taking advantage of record-low mortgage rates.

Mortgage applications to purchase a home rose 5% for the week and were a remarkable 33% higher than a year ago, according to the Mortgage Bankers Association’s index, which was seasonally adjusted, including for the Fourth of July holiday.

Buyer demand has been incredibly strong since mid-May, after the coronavirus shut down most housing activity in April. The only thing standing in the way of more sales is the record low supply of homes for sale.

Home prices gains continue to accelerate, so low mortgage rates are giving buyers much-needed help. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 dropped to 3.26% from 3.29%. Points, including the origination fee, for loans with a 20% down payment decreased to 0.35 from 0.36.

“Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the impacts from a week of mostly positive economic data, such as June factory orders and payroll employment,” said Joel Kan, an MBA economist. “The average purchase loan size increased to $365,700 — also another high — as borrowers contend with limited supply and higher home prices.”

Applications to refinance a home loan, which are generally more sensitive to weekly interest rate moves, rose just 0.4% from the previous week but were 111% higher than one year ago. Because interest rates have been low and refinance demand has been strong for so long, only a limited number of borrowers can still benefit significantly from even the new record low rate.

The refinance share of mortgage activity decreased to 60.1% of total applications from 61.2% the previous week.

Mortgage rates continued to drop at the start of this week, especially after the stock market sell-off Tuesday. Mortgage rates loosely follow the yield on the 10-year Treasury.

“Prediction is tough, but what I can say is that a lot of us who watch the market very closely are on high alert for signs that the low rate environment is under imminent threat,” said Matthew Graham, chief operating officer at Mortgage News Daily. “While that could change with even one major coronavirus headline, we’re not seeing that threat as of today.”

Credit: CNBC

After plunging to nearly the lowest level in its history in April, an index measuring consumer sentiment in the housing market bounced back significantly in June. Renters were especially optimistic about homebuying.

The share of consumers who think it’s a good time to buy a home increased from 52% to 61% month to month, according to the Fannie Mae survey, while fewer Americans said it was a bad time to buy. Renters drove much of that improvement.

“The share of renters who say it’s a good time to buy a home is now at its highest level in five years, suggesting favorable conditions for first-time homebuying, consistent with the recent rebound in home purchase activity,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

Current homeowners are also getting slightly more optimistic about the sales market, especially given the lack of housing supply. The percentage of respondents saying now is a good time to sell a home increased from 32% to 41%, although nearly half still think it’s a bad time to sell.

Home sales jumped dramatically in May, after grinding to a halt in March and April. While new listings are coming on the market, the total inventory of homes for sale at the end of May was 19% lower than May 2019, according to the National Association of Realtors. Pending sales in May, which represent signed contracts on existing homes, jumped a record 44% compared with April.

“However, this activity may cool again in the coming months, depending on the extent to which it can be attributed to consumers having chosen to delay or to accelerate homebuying plans due to the pandemic,” said Duncan. “We believe the continuing uncertainty regarding the coronavirus’ containment suggests an uneven and potentially volatile course toward economic recovery.”

Consumers are still very concerned about their job security, even as the employment picture improves slightly. Renters and homeowners with a mortgage are particularly worried, according to the survey, given the sudden record-high unemployment brought on by the pandemic.

More Americans now think home prices will strengthen, which is a double-edged sword in the market. Home prices were already elevated going into the pandemic, and affordability was weakening despite record-low mortgage rates.

On that front, more respondents said they expect mortgage rates to rise over the next year.

 

What does this mean to us?  First, it may a good time to re-finance. Second, Real Estate will continue to be one of the best investments available for years to come.