Mortgage applications dropped this week in the wake of rising interest rates and growing coronavirus … [+]
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It was just a few weeks ago that mortgage rates reached 50-year lows. Today, rates are up (and rising), homebuyer interest is down, and the Federal Reserve is stepping in to prop things up.
According to data released this morning from the Mortgage Bankers Association, interest rates on 30-year fixed-rate mortgage loans averaged 3.82% over the last week—up from 3.74% the week prior and 3.29% at the start of the month.
Here’s how Joel Kan, MBA’s associate vice president of economic and industry forecasting, explains it: “The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels. Several factors pushed rates higher, including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges.”
Those higher rates—combined with the countless shelter-in-place orders issued across the country—have buyer interest plummeting. MBA’s data shows overall mortgage applications were down 29.4% in just the last week.
Applications for purchase loans were down 15%, hitting their lowest point since last August. Purchase activity was down the most in New York state, which saw a statewide stay-at-home order on March 22 and now has the highest number of COVID-19 cases in the country. As a result, NY purchase applications dropped 35% in just the last week.
Purchase activity was also down significantly in California (-23%), where a shelter-in-place order was enacted last week, and in Washington (-17%), which has the second-highest death toll from COVID-19 in the nation.
The drop in home purchases isn’t a huge surprise, though. A survey from the National Association of Realtors showed that nearly half of all member agents had seen homebuyer interest decrease—and that was nearly a full week ago. Another survey from the California Association of Realtors showed that 54% of member agents actually had a client back out of a deal due to concerns surrounding the outbreak.
According to NAR chief economist Lawrence Yun, economic conditions, social distancing, and the ongoing housing shortage are all playing a role in this decreased activity. Unfortunately, Yun says it probably won’t do much to help ever-rising home prices.
“With fewer listings in what’s already a housing shortage environment, home prices are likely to hold steady,” Yun says. “The temporary softening of the real estate market will likely be followed by a strong rebound once the economic quarantine is lifted, and it’s critical that supply is sufficient to meet pent-up demand.”