It almost doesn't sound like news anymore: Mortgage rates fell to another record low last week, and that reinvigorated refinance demand. Homebuyers, however, took a step back.
Total mortgage application volume rose 5.1% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.
Mortgage demand got a lift from another big drop in mortgage rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.19% from 3.26%. Points, including the origination fee, decreased to 0.33 from 0.35 for loans with a 20% down payment. That rate is 63 basis points lower than the recent high in late March.
Applications to refinance a home loan, which are most sensitive to weekly rate moves, jumped 12% for the week and were 107% higher than a year ago. The refinance share of mortgage activity increased to 64.2% of total applications from 60.1% the previous week. Record low rates caused Fannie Mae to improve its housing outlook for the second half of this year.
"The continued decline in mortgage rates pushed up our refinance volume forecast by about $100 billion,." said Doug Duncan, Fannie Mae's chief economist. "At the current mortgage rate, we estimate that nearly 60% of all outstanding loan balances have at least a half-percentage point incentive to refinance."
Demand from homebuyers fell back 6% for the week and was 16% stronger than the a year ago. That annual comparison, though, was half of what it was two weeks ago.
"Purchase activity remains relatively strong, despite the continued economic uncertainty and high unemployment caused by the ongoing pandemic," said Joel Kan, MBA's associate vice president of economic and industry forecasting.
The biggest hurdles to homebuying today are lack of supply and rising prices, especially on the lower end of the market. The nation's homebuilders are benefiting from that. Mortgage applications to purchase a newly built home were up over 50% in June annually. Builders, however, are struggling to keep up with the new demand, especially since they basically shut down their operations in March and April.