After a brief pullback at the end of June, homebuyers rushed back into the mortgage market last week, taking advantage of record-low mortgage rates.
Mortgage applications to purchase a home rose 5% for the week and were a remarkable 33% higher than a year ago, according to the Mortgage Bankers Association's index, which was seasonally adjusted, including for the Fourth of July holiday.
Buyer demand has been incredibly strong since mid-May, after the coronavirus shut down most housing activity in April. The only thing standing in the way of more sales is the record low supply of homes for sale.
Home prices gains continue to accelerate, so low mortgage rates are giving buyers much-needed help. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 dropped to 3.26% from 3.29%. Points, including the origination fee, for loans with a 20% down payment decreased to 0.35 from 0.36.
"Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the impacts from a week of mostly positive economic data, such as June factory orders and payroll employment," said Joel Kan, an MBA economist. "The average purchase loan size increased to $365,700 — also another high — as borrowers contend with limited supply and higher home prices."
Applications to refinance a home loan, which are generally more sensitive to weekly interest rate moves, rose just 0.4% from the previous week but were 111% higher than one year ago. Because interest rates have been low and refinance demand has been strong for so long, only a limited number of borrowers can still benefit significantly from even the new record low rate.
The refinance share of mortgage activity decreased to 60.1% of total applications from 61.2% the previous week.
Mortgage rates continued to drop at the start of this week, especially after the stock market sell-off Tuesday. Mortgage rates loosely follow the yield on the 10-year Treasury.
"Prediction is tough, but what I can say is that a lot of us who watch the market very closely are on high alert for signs that the low rate environment is under imminent threat," said Matthew Graham, chief operating officer at Mortgage News Daily. "While that could change with even one major coronavirus headline, we're not seeing that threat as of today."