Estate agents come to a broker tour showing a house for sale in San Rafael, California.
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With mortgage interest rates near a record low, mortgage demand, especially from home buyers, is now significantly higher than a year ago, but there are warning signs that first-time buyers may be struggling to stay in the market.
The total volume of mortgage applications fell 0.8% last week from the previous week, according to the seasonally adjusted index of the Mortgage Bankers Association.
Mortgage applications to buy a home were 2% lower last week than the week before, but 21% higher annually. Home buyers are making up for lost time last spring and appear to have a new urge to move due to the Covid-19 pandemic. Buyers’ demand for new construction is especially strong as the supply of existing homes for sale continues to decline.
The applications to refinance a mortgage loan were basically flat, fell 0.4% during the week, but were 121% higher than a year ago. The demand for refinancing has been increasing because mortgage rates continue to drop. Even small fee movements open the field to more borrowers who can take advantage and save much-needed cash on their monthly payments.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $ 510,400 remained unchanged at 3.20% with origination points and fees increasing to 0.37 from 0.35 for loans with a down payment of 20 %.
However, the average rate for FHA-backed 30-year fixed-rate mortgages increased to 3.27% from 3.13%.
That led to much larger drops in FHA loan applications to refinance and buy a home. FHA loans are popular with first-time homebuyers because they offer lower down payments.
A pullback in FHA purchase demand could be a red flag for the housing recovery. These buyers accounted for a strong 35% of closed sales in June, according to the National Association of Realtors, but that was before the pandemic worsened. Higher interest rates, as well as rising house prices, may be affecting this cohort.
“This trend, coupled with the fact that the average loan size is increasing, indicates that potential first-time buyers are more affected by the increased economic stress caused by the resurgence of Covid-19 cases, as well like uncertainty about how the next round of government support will form, “said Mike Fratantoni, chief economist at the MBA.
Mortgage rates moved slightly higher earlier this week, but could see a more dramatic move later in the week, after the Federal Reserve reports its latest monetary policy stance on Wednesday afternoon.
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