Interest Rates Are Low But Mortgage Applications Are Stagnant

Currently, mortgage applications are stagnant even though mortgage interest rates are the lowest we have seen them since the election this past November. However, this drop in rates is still not enough to entice homeowners to refinance their home loans, and it certainly hasn’t persuaded potential buyers to take out a loan to purchase a home, either.

Recently, the Mortgage Bankers Association (MBA) determined that although the total mortgage application volume increased by 0.1%, the overall volume is still 22% lower than it was the previous year. The Mortgage Bankers Association alongside other investors are left baffled at this standstill; with mortgage rates decreasing from the previous year, there should be more buyers jumping at this opportunity, right? So, why aren’t buyers and borrowers budging?

Mortgage Rates Aren’t Low Enough

In those rare, desirable periods of time when mortgage rates take a dive on the low side, potential buyers are more than eager to jump at this opportunity in the hopes to obtain a rate that is low, affordable, and easy to make payments on. Even homeowners will use this time to refinance their mortgage for a better interest rate. Unfortunately, with the recent decrease in mortgage interest rates, analysts are seeing the exact opposite in trends.

Instead, the MBA concluded that there was only a 2% rise in applications for refinancing while the overall average remained 40% lower than the previous year. Many homeowners just aren’t taking the bait. Another reason why homeowners aren’t taking advantage of the drop in rates is due to the fact that many have already refinanced during a period of time when mortgage rates were extraordinarily low, which only means the number of potential applicants has decreased significantly. Although we are finally seeing a well-needed drop-in rates, unfortunately, it just isn’t enough.

Currently, the average interest rate for a 30-year fixed-rate mortgage with loan balances of $424,100 or less stands at 4.12% with points at .38–remaining unchanged–and an 80% loan-to-value ratio loans; it previously was listed at 4.14% (Source). With rates as low as 3.44% in 2016, homeowners and potential buyers are barely batting an eye at this new change in rate.

Current Real Estate Market Is Affecting Rates

The standstill that the Mortgage Bankers Association has witnessed during the new decrease in rates can also be contributed to the type of real estate market we are currently in. Right now, brave buyers are searching for homes in a seller’s market where prices are sky-high but options are very low. Mix that together with still inflated interest rates and you’ll find it’s a near impossibility for young potential buyers to afford a loan let alone a home. Of course, keep in mind that the type of market tends to fluctuate depending upon the area one lives in. Due to the high price points, many homes are selling for, buyers are leaning on adjustable-rate mortgages for added help in lower interest rates. Research shows that within the past year, the volume of adjustable-rate mortgage applications increased by 13%, while the Federal Housing Administration (FHA) loan applications are 4% higher. Federal Housing Administration loans have proven to be very popular amongst the younger generation of buyers since it does not require future homeowners to put down a large down payment while offering a variety of payment plans with low mortgage rates.

Until we are finally in a position where mortgage interest rates are significantly lower and the real estate market is either in a balanced market or a buyer’s market, the Mortgage Bankers Association will not see much of an improvement in the overall mortgage application volume for the rest of 2017.

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wizard_ishAugust 24, 2020