Record low mortgage rates are clearly not as impressive as they used to be.
Even with another new low set last week, mortgage application volume decreased 5.1% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand is still considerably higher for refinances and purchase applications than it was a year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.14% from 3.20%. Points, including origination fee, increased to 0.39 from 0.37 for loans with a 20% down payment. The rate was 87 basis points higher than a year ago.
Applications to refinance a home loan, which are most sensitive to weekly rate moves, fell 7% for the week but were 84% higher annually. Generally, if a borrower can shave 75 basis points off their current rate, it makes financial sense to refinance. So many borrowers have already refinanced that there may not be significant interest for doing so. Still, at today’s low rates, close to 18 million borrowers with good credit scores could benefit from a refinance, according to calculations by Black Knight, a mortgage data and analytics firm.
“MBA’s forecast calls for rates to remain at these low levels, which will continue to spur strong refinance activity and offer homeowners relief in the form of lower monthly mortgage payments during these uncertain economic times,” said the association’s forecaster Joel Kan.
Mortgage applications to purchase a home also fell for the week, down 2%, but were 22% higher than a year ago. Buyer demand was strong heading in to the spring market and appears to have gained strength from the Covid pandemic, as consumers stuck in smaller homes or urban apartments sought more space in the suburbs. The biggest problem is a lack of supply and rising home prices. That is keeping some potential buyers on the sideline.
“Purchase loan balances continued to climb, which is perhaps a sign that the still-weak job market and tighter credit for government loans are constraining some first-time homebuyers,” Kan said.
Mortgage rates continued to fall at the start of this week and could head even lower depending on the results of the all-important monthly employment report, schedule to be released Friday. While rates are low, mortgage credit availability is still tough, and the best rates only go to the top-tier borrowers. Lenders are being more strict with low down-payment loans, like FHA mortgages, which are popular with first-time buyers because of their 3.5% down payment. The rate on FHA loans is usually lower than conforming, but last week it was unchanged at 3.27%.