Steady Interest Rates Revive Mortgage Volume

September 4, 2018

According to the Mortgage Bankers’ Association’s seasonally adjusted report, last week saw a 4.2% rise in total mortgage application volume. However, that volume was still 15% lower than the volume of the same week a year ago.

Less volatility in the mortgage market may be credited for this, having witnessed wide swings at the beginning of August.  At 4.81% last week, the average contract interest rate for 30-year fixed- rate mortgages with conforming loan balances ($453, 100 or less) remained stable, with a reduction in points for loans with a 20% down payment from 0.43 to 0.42 (inclusive of the origination fee).

The market experienced a slight decrease in the average rate for jumbo loans, and this may have been the catalyst for more refinance activity since borrowers with larger loans have a lot to gain from even the minutest of drops in rates. Mortgage applications for home refinance loans increased 6% for the week, however, this was still 33% lower than the previous year’s applications, when interest rates were reasonably lower.

Share in the refinance mortgage activity grew to 38.7% in total applications from last week’s 37.6%. The market saw a 6.5% increase in total applications within the adjustable-rate mortgage (ARM) share of activity. Due to the fact that ARMs offer lower interest rates and can be at a fixed rate for up to a decade, they tend to be favorites for homebuyers when prices are high.

The week to week less rate-sensitive home purchase mortgage applications, increased 3% from the week before, and were hardly 1% higher than the previous year’s. A critical shortage in the homes for sale as well as continued price gains have left buyers stranded. On the higher end of the market, however, the sale of homes has been strong, and therefore a decline in jumbo loan rates may have helped some buyers bag a home!

Persistent challenges of affordability and low inventory have kept the purchase application volume below its 2018 average, according to Joel Kan, an MBA economist.

There hasn’t been any movement in mortgage rates this week as well.

According to Matthew Graham, chief operating officer at Mortgage News Daily, “During that time, underlying bond markets have improved slightly. Normally, those improvements would translate to modest improvements in rates, but lenders are waiting for a bigger breakout that, thus far, has failed to materialize.”

Much as The Housing Recovery Feels like it is Over- it isn’t!

In addition to a slew of negative housing numbers from the past several months, July was not any better.

The market has experienced declining sales of new and existing homes, with single-family home construction essentially remaining unmoved for the year, mortgage rates rising and affordability weakening. In as much as it may seem like the housing recovery that finally took off in the last four years has come to a halt- it has not.

Is the market therefore experiencing a cooling off? That’s right! Prices of homes rose too high, at such a supersonic speed, and as such the market is hitting a ceiling. How do we know? Well, a report released last week by the National Association of Realtors, indicated that the price gains are finally beginning to shrink. Real estate agents across the country have said that sellers are bringing their prices down.

Sam Khater, chief economist at Freddie Mac said, “I don’t think the recovery is over. Economic growth is still very strong and essentially running at capacity. However, the consistent decline in housing affordability means there are fewer consumers who can afford to purchase a home.”

Demand is very solid, and price gains are continuing to ease, which means that the housing recovery is still ongoing. However, just like everyone knows in real estate, location is very paramount to this recovery.

Khater went on to say that, “While the decline in home sales and deceleration in home price growth has been broad- based, the slowdown is more intense in the hot coastal markets- which is a natural reaction to rapidly escalating home prices and higher rates versus a year ago.”