An “Open House” sign is displayed when potential home buyers arrive at a property for sale in Columbus, Ohio.
Ty Wright | Bloomberg | Getty Images
Record low mortgage rates may now be a holder of the past.
Now, several weeks of rising rates erase what led to an incredibly high demand for refinancing. This reduced the total volume of weekly mortgage applications by 1.9% last week, according to the seasonally adjusted index of the Association of Mortgage Banks.
The average contract interest rate for 30-year fixed-rate mortgages with compliant loan balances ($ 510,400 or less) increased from 2.88% to 2.92%, from 0.33 to 0.37 (including home commission) for loans with a 20% down payment. The rate was 95 basis points higher a year ago.
The average 15-year fixed rate rose for the first time in seven weeks, to 2.48%.
With higher rates now offering less potential savings, applications to refinance a home loan fell 5% a week, but were 87% higher than a year ago. This annual comparison had been over 100% last week.
“Market expectations for a larger-than-anticipated tax relief package, which is expected to further boost economic growth and reduce unemployment, have boosted Treasury yields over the past two weeks,” said Joel Kan, associate vice president of economic and industrial MBA forecasting. “After a wave of post-holiday refinancing, higher rates on refinancing demand were reduced.”
However, demand from home buyers increased despite higher rates. Mortgage applications to buy a home increased 3% per week and were 15% higher than a year ago. The coronavirus pandemic drove strong demand for larger suburban homes. Despite the launch of vaccines, this demand does not seem to have diminished. Right now, the biggest hurdles for home buyers are high prices and inventory of homes for sale with a record low.
“Home buyers in early 2021 continue to look for newer, larger homes,” Kan said. “The average loan size for purchase loans jumped to $ 384,000, the second highest tier in the survey,” dating back to 1990.
The approaching Biden administration is preparing to make multiple moves in the housing market that could benefit both buyers and builders. However, mortgage rates started the week flat, as traders are likely to wait for the first major economic policy announcements before making a move.