April 14, 2021 | More Signs of Cooling Demand: Mortgage Applications to Purchase a Home Drop Below 2019 for First Time in Pandemic Housing Craziness amid Higher Interest Rates

he index for mortgage applications to purchase a home in the week ended April 9 fell by 3.7% for the week, and by 20% from peak-frenzy in January this year, and thereby edged below the same week in April 2019 for the first time since this Pandemic housing boom started, according to the Mortgage Bankers Association (the big drop in February was during snowmageddon; data via Investing.com):

Despite a few click-bait stories in the media that are then endlessly propagated in the make-you-crazy social media about a ridiculous bidding war leading to a ludicrous amount paid over asking price, there have been signs that higher mortgage rates, exploding home prices, and other factors have put a damper on demand.

This has been seen in various metrics, including in the high-frequency metric of weekly mortgage applications and in sharply dropping monthly home sales.

“The third straight week of declining purchase activity is a sign that rising home prices and tight supply are constraining home sales – especially in the lower price tiers,” the MBA’s report said.

The MBA’s mortgage refinance index fell by 5% for the week ended April 9, and has plunged by over half from the spike in March 2020 to the lowest level since February 2020.

“Many borrowers have either already refinanced at lower rates or are unwilling – or unable – to refinance at current rates,” the MBA said.

The mortgage refinance index is still double the level compared to two years ago, April 2019, when mortgage rates were in the 4%-range:

That 4% range in April 2019 was unthinkably high late last year when folks were talking about below-2% mortgage rates. But now that 4% mortgage rate is becoming more thinkable.

In the week ended April 9, the average 30-year fixed rate for mortgages with conforming balances declined to 3.27%, according to the MBA. They have now vacillated in the same tight range for six weeks, after the initial 40 basis-point surge from 2.85% in mid-December (data via Investing.com):

So even this relatively small increase in mortgage rates, from the historically low levels last year to still very low levels currently – in conjunction with sky-high and still ballooning home prices – is starting to sap housing demand from retail buyers.

Wolf Richter April 14th, 2021

Posted In: Wolf Street

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