Mortgage rates remained at a record low last week, but refinance demand pulled back anyway.
That, in addition to a brief respite in the surprisingly strong demand from homebuyers, caused total mortgage application volume to fall 8.7% on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association.
Homebuyer mortgage applications have been surging for five straight weeks, thanks to pent-up demand from March and April and a coronavirus-induced desire by more consumers to find more space and escape urban apartments. Purchase mortgage volume fell 3% for the week but was a remarkable 18% higher than a year ago.
"One factor that may potentially crimp growth in the months ahead is that the release of pent-up demand from earlier this spring is clashing with the tight supply of new and existing homes on the market," said Joel Kan, an MBA economist. "Additional housing inventory is needed to give buyers more options and to keep home prices from rising too fast."
Applications to refinance a home loan fell 12% for the week but were 76% higher than the same week in 2019. Lenders may not be offering the best rates on refinances, simply to keep up with high volume they're now seeing from homebuyers. In addition, the difference between where rates were a year ago and where they are now is narrowing.
"Despite the decline last week, MBA still anticipates refinance originations to increase to $1.35 trillion in 2020 — the highest level since 2012," Kan said.
The refinance share of mortgage activity decreased to 61.3% of total applications from 63.2% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 or less remained unchanged at 3.30%. Points including the origination fee increased to 0.32 from 0.29 for loans with a 20% down payment.