A sharp drop in mortgage interest rates sent homeowners and potential homebuyers to their mortgage lenders.
Total mortgage application volume surged 8.6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That is the first overall increase in weekly applications since the end of February.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.20% from 3.27%, with points increasing to 0.36 from 0.33 (including origination fee) for loans with a 20% down payment. That rate was 25 basis points higher a year ago.
Homeowners reacted swiftly to the potential savings. Applications to refinance a home loan jumped 10% for the week, but were still 23% lower than a year ago. The refinance share of mortgage activity increased to 60% of total applications from 59.2% the previous week.
“Mortgage rates dropped to their lowest levels in around two months, prompting a small resurgence in refinance activity after six weeks of declines,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Borrowers acted on the decrease in rates for most loan types, with both conventional and government refinance applications showing gains.”
Mortgage applications to purchase a home increased 6% for the week and were 57% higher than a year ago. That annual comparison, however, is skewed and will be for several more weeks due to the fact that the housing market essentially ground to a halt one year ago for the first two months of the pandemic. It then bounced back dramatically at the start of last summer.
“MBA expects the purchase market to remain strong, with the recovering job market and supportive demographics fueling housing demand in the months ahead,” Kan said. “The average loan size for purchase applications increased after a few weeks of declines, as fewer homes available for sale make for a competitive buying market that is accelerating home-price growth.”
Higher home prices and the record low supply of homes for sale have caused the housing market to slow, even in the historically busy spring season. The hope is that as more Americans are vaccinated, potential sellers will feel better about listing their homes on the market. So far, fewer new listings have come on the market this month than normally would.