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Interest Rates At Record Low But Mortgage Demands Still Falling

Mortgage Demands
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EDITOR NOTE: This may sound obvious to the point of ridiculousness, but no, you are neither a cog in the wheel nor an automaton. Your spending and saving behavior is not a function of monetary or fiscal mechanisms but of free choice based on your own personal forecasts. Hence, lower mortgage rates, however appealing, may not be attractive enough for you to take the risk of buying a new home. This is made evident by current mortgage demand--sinking as interest rates hit record lows. SImilarly, monetary and fiscal stimulus won’t cause you to take on new debt or ramp up your discretionary spending. Uncertainty prevails in everything except for your purchasing power. That’s “certain” to erode, counteracting any future stimulus you may or may not receive.

Despite another interest rate drop, demand for refinancing and purchasing mortgages fell last week, with total mortgage application volume down 4.8% from the previous week, according to the Mortgage Bankers Association.

Record-low mortgage rates are apparently not as impressive as they used to be, likely because rates have been so low for so long.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.05% from 3.10% last week, while points, including origination fee, increased to 0.52 from 0.46 for loans with a 20% down payment. That is the lowest in the 30-year history of the MBA survey. The rate was right around 4% one year ago.

Applications to refinance a home loan, which are usually sensitive to weekly rate moves, still fell 7% for the week, although they were still 52% higher compared with a year ago, according to the seasonally adjusted index.

“There are indications that refinance rates are not decreasing to the same extent as rates for home purchase loans, and that could explain last week’s decline in refinances,” said Joel Kan, an MBA economist. “Many lenders are still operating at full capacity and working through operational challenges, ultimately limiting the number of applications they are able to accept.”

Mortgage applications to purchase a home fell 2% for the week and were 22% higher than a ago. That is a slightly smaller annual gain than the previous week. Demand for housing has been incredibly strong in recent months, as pent-up demand from the pandemic-struck spring combined with a resulting desire for larger suburban homes.

There is far less supply, however, than demand, and that is lighting a fire under home prices, which are surging by double digits in some markets. Most of the sales activity is now on the higher end of the market, where there is more supply.

“Even as pent-up demand from earlier in the year wanes, there continues to be action in the higher price tiers, with the average loan balance remaining close to an all-time survey high,” added Kan. 

Originally posted on CNBC

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