High prices and low supply are finally taking some of the heat out of the housing market.
Even with interest rates falling slightly, mortgage application volume fell 4 percent last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. It fell to the lowest level since February 2020.
Applications for a mortgage to purchase a home fell 3 percent for the week and were 2 percent lower than a year ago. This is the second straight week that purchase demand was lower than a year earlier, even though mortgage rates are still lower.
Pending home sales, which are counted by signed contracts and are therefore an indicator of future closed sales, dropped a wider-than-expected 4.4 percent in April, according to the National Association of Realtors.
Buyers are clearly starting to hit an affordability wall. This is especially clear from the government loan demand. FHA and VA loans offer low or even no down payment options for borrowers with lower incomes and credit scores.
“Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices continues to hold back purchase activity,” said Joel Kan, an economist with the MBA. “The government purchase index declined to its lowest level in over a year and has now decreased year over year for five straight weeks.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.17 percent from 3.18 percent, with points increasing to 0.39 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio loans. That rate was 20 basis points higher one year ago.
Lower rates did not light a fire under refinance demand. Those applications decreased 5 percent from the previous week and were just 6 percent higher than a year ago. The refinance share of mortgage activity decreased to 61.3 percent of total applications from 61.4 percent the previous week.
“Even though rates have been below 3.20 percent over the past month, they are still around 20-30 basis points higher than the record lows in late 2020,” Kan said.
The refinance boom during the second half of last year has left fewer and fewer borrowers able to benefit from a refinance now.