The surge in mortgage demand from homebuyers over the past two months appears to be waning, even as mortgage rates continue to drop.
Mortgage applications to purchase a home fell for the second straight week, down 1% from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Purchase volume was still 15% higher than one year ago, but that annual comparison is now shrinking.
"The weakening in activity is potentially a signal that pent-up demand is starting to wane and that low housing supply is limiting prospective buyers' options," said Joel Kan, an MBA economist. "The average purchase application loan size increased to a record high in our survey — more proof that tight inventory conditions are leading to faster price growth."
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.29% from 3.30% last week. Points including the origination fee increased to 0.36 from 0.32 for loans with a 20% down payment. That is another record low.
"Investors are contemplating the risks of the recent resurgence of Covid-19 cases to the labor market and economy, and Treasury rates, and mortgage rates are moving lower as a result," said Kan.
Refinance demand, which is most sensitive to interest rates, fell 2% for the week but was 74% higher from a year ago. Refinance demand has been so high for so long that some lenders are not offering the best rates on these applications, simply in order to handle the volume. In addition, rates have been below 3.5% since March, and many borrowers have already refinanced.
Mortgage rates fell even lower at the start of this week, marking yet another record low and making June the best month in the history of the mortgage market.
"The low rate environment has been made possible first and foremost by the economic contraction resulting from coronavirus," said Matthew Graham, chief operating officer at Mortgage News Daily. "In and of itself, however, that still likely wouldn't be sufficient to get rates as low as they are. The rest of the heavy lifting has been done by the Federal Reserve, which stepped in when markets were experiencing the height of their recent volatility in early March 2020."
Low rates may not be enough to offset new evidence that the pandemic is worsening once again. The more concerned consumers are about their personal and financial health, the less likely they are to make large investments like homes.