Buyers are rushing back into the housing market, enticed by record low mortgage rates and a pandemic-induced need to nest like never before.
Mortgage applications to purchase a home rose 4% last week from the previous week and were a remarkable 21% higher than one year ago, according to the Mortgage Bankers Association's seasonally adjusted index. That was the ninth consecutive week of gains and the highest volume in more than 11 years.
"The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence," said MBA economist Joel Kan.
Buyers were also fueled by a new record low mortgage rate. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.30% from 3.38%, with points decreasing to 0.29 from 0.30 (including the origination fee) for loans with a 20% down payment.
Lower rates also fueled refinance demand. Those applications rose 10% for the week and were 106% higher than a year ago. Refinances had been slipping for weeks, but the new record low rates may have woken some homeowners up to the potential savings.
"Refinancing continues to support households' finances, as homeowners who refinance are able to gain savings on their monthly mortgage payments in a still-uncertain period of the economic recovery," Kan said.
The refinance share of mortgage activity increased to 63.2% of total applications from 61.3% the previous week. With fixed interest rates so low, the adjustable-rate mortgage share of activity decreased to just 2.8% of total applications. ARM loans carry lower rates but higher risk.