Weekly mortgage applications fall sharply as potential homebuyers drop out

  • Homebuyers are pulling away from this summer’s expensive and competitive housing market, even as interest rates settle.
  • More new listings are coming on the market this summer, but buyers are bumping up against high prices and multiple offers.
  • Mortgage rates haven’t moved much at all in the last few weeks, despite escalating trade rhetoric that caused a pullback in the stock market.

Homebuyers are pulling away from this summer’s expensive and competitive housing market, even as interest rates settle. Total mortgage application volume fell 4.9 percent, seasonally adjusted, last week compared with the previous week, according to the Mortgage Bankers Association. There were 12 percent fewer applications compared with the same week one year ago.

Applications for mortgages to purchase a home led the decline, falling 6 percent for the week. More new listings are coming on the market this summer, but buyers are bumping up against high prices and multiple offers. Cash buyers often have the upper hand, as sellers would rather not deal with appraisals that might not meet those higher prices.

If June is anything like May, demand is still high, but sales will be lower. A monthly demand index from real estate brokerage Redfin found the same number of people were requesting home tours in May as in April, but the number of buyers making offers fell 16.7 percent year over year.

"People listing their homes for sale in higher numbers this April and May is good news for buyers, and good news for home sales," said Redfin's head of analytics, Pete Ziemkiewicz. "But it's still not enough to satisfy buyer demand, which means price increases will likely continue."

Affordability is clearly weakening. Purchase applications were just 1 percent higher compared with a year ago, when mortgage rates were significantly lower.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84 percent from 4.83 percent, with points decreasing to 0.42 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

“Concerns over trade between the US and China persisted last week. This caused Treasury rates to decrease 5 basis points over the week,” noted Joel Kan, an MBA economist. “And, these concerns outweighed positive news on housing starts and a generally bullish view on second quarter US growth.”

Applications to refinance a home loan, which are more rate-sensitive, also fell, down 4 percent for the week and off 27 percent compared with a year ago. Homeowners today are less likely to refinance, even if they want to take cash out of their increasingly equity-rich homes. With mortgage rates more than a full percentage point higher than the record lows of the last few years, they are more likely to take out a second, home equity loan and preserve the low rate they have on their primary mortgage.

With the drop in purchase volume, the refinance share of mortgage activity increased to 37.6 percent of total applications from 36.8 percent the previous week.

Mortgage rates haven’t moved much at all in the last few weeks, despite escalating trade rhetoric that caused a pullback in the stock market. Interest rates could move this week, as more reports measuring the current state of the U.S. economy are released.

WATCH: Home sellers may be dropping prices due to higher mortgage rates