Weekly mortgage demand hits lowest since February 2020
Fewer mortgages are signed, but there’s a good explanation why.
Although mortgage rates are no longer at the record highs they were several times last year, they remain competitive nonetheless. But despite this, the volume of mortgage applications fell 4% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Not only that, but the volume of home loans has fallen to its lowest level since February 2020.
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Why are fewer mortgage loans signed?
Right now, there is a record number of homes available on the market, and much of it is to blame for the aforementioned numbers. After all, if there are no houses to buy, the new mortgages will not be signed.
It could also be that some buyers are finally starting to pull out given the surge in house prices throughout the pandemic. Low inventory has caused prices to skyrocket and many homes are forced into bidding wars, forcing buyers to spend even more as they attempt to fight each other to make accept their offers.
The cost of new homes has also increased, in part due to a severe shortage of lumber that has pushed up the price of building materials. Newly built homes these days cost about $ 36,000 more, on average, which makes some buyers pay.
Overall, the combination of low housing stock and high house prices is likely pushing home buyers away, and mortgage rates themselves are far from the reason mortgage lending volume is declining.
What about refinancing?
Refinancing requests also fell last week despite a slight drop in mortgage rates. The reality is that many homeowners who wanted to refinance did so last year, when the refinancing rates were so attractive. While they’re pretty competitive now on a historic basis, they’re not at all-time highs like they were in the second half of 2020.
Will mortgage demand pick up?
If the housing stock opens and more listings hit the market over the next few months, we could see an increase in mortgage volume, especially if rates stay at or around today’s levels. . But right now it’s a pretty big “if”.
Normally new listings explode in the spring, but that hasn’t happened this year, and if sellers don’t budge over the next few months, many will likely make the decision to wait until winter – which can be a big deal. challenge the time to sell – and put their home up for sale in the spring of 2022. If that happens, mortgage demand could stagnate for months before picking up again, and many buyers could be caught in a cycle where they want to buy a home but may not find one that is financially or logistically suitable.
Of course, we don’t know if the normal spring surge will happen in the summer of this year instead, and it could very well happen. But until inventories rise significantly and home prices start to fall, mortgage activity is expected to stagnate or even decline, as it did last week.