Mortgage industry news has been bringing those in the real estate business as well as home buyers and owners some good news amid the coronavirus pandemic: historically low mortgage rates. As we watch the unfolding situation with the US real estate market, many experts have stated that low mortgage rates would keep demand up in the market, despite economic fears and uncertainties. However, new mortgage application data actually shows a drop in demand.
Related: US Real Estate Market Data Shows COVID-19 Effect
Mortgage Industry 2020 Update: Weekly Applications Drop 29.4%
After the Federal Reserve reduced the federal funds rate, introducing a near 0% interest rate, mortgage rates actually continued to climb week-over-week (WoW). Last week, the average interest rate for a 30-year fixed-rate mortgage with conforming loan balances ($510,400 or lower) was 3.82%. A week prior, it had been 3.72%.
Joel Kan, the MBA’s associate vice president of economic and industry forecasting, says the rise in mortgage rates can be attributed to several different factors:
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.
The combination of lockdowns across major US cities as well as the rise in mortgage rates caused a large drop in mortgage applications. The total volume of applications fell by 29.4%, according to the Mortgage Bankers Association (MBA).
Many other experts in the real estate and mortgage industry believe that the rise in mortgage rates was due to the pressure that mortgage lenders were facing from a rise in applications earlier this month. Mortgage forecasts for 2020 continue to indicate that the moves made by the Federal Reserve among other factors will bring mortgage rates back down, despite the fact that they have risen to their highest level since January 2020.
Both applications for refinancing and buying a home fell last week. While it’s normal for the mortgage industry to see volatile changes in refinancing applications as weekly mortgage rates fluctuate, applications for home buying are usually more stable. However, these applications dropped 15% WoW and 11% year-over-year. This indicates that the rise in mortgage rates is likely not the only factor causing the decrease in demand in the mortgage market.
The stock market volatility, as well as the increase in coronavirus cases in the US, is having an impact on applications. Purchase application data in the states that have reported the highest number of cases show large drops:
- New York: down 35%
- California: down 23%
- Washington: down 17%
Related: The Effect of the Coronavirus on the Bay Area Housing Market
Homebuyers Still in the Real Estate Market in Other States
In some other locations in the US housing market, there is still a high demand for buying. For example, in the South Florida real estate market, reports are showing that there is still a high demand in the single-family home market. Many are looking to take advantage of the low mortgage rates, despite the ongoing situation with COVID-19. Although they increased WoW, mortgage rates are still very low. Freddie Mac reports that in March 2019, the average rate for a 30-year fixed-rate mortgage was 4.27%. Florida residents looking to escape high rents and become homeowners are still driving activity there.
Related: How to Get the Best Rental Property Mortgage Rates in 2020
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