The housing market continued to slow this week even as interest rates remain below 3 percent. MBA Economist Joel Kan explains why.
The housing market continues to slow with a drop in mortgage applications, even as interest rates recently dropped below the 3 percent mark for the first time in months.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.5 percent on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 1 percent from the previous week and was 18 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier and was 34 percent higher than the same week one year ago.
This decrease came despite interest rates dropping below 3 percent for the first time since February, according to the latest report from Freddie Mac. But many economists were expecting this. Mortgage giants Fannie Mae and Freddie Mac each predicted a slowdown in the housing market as mortgage originations decrease in 2021.
“Mortgage applications decreased last week, even as mortgage rates dropped for the third week in a row,” said Joel Kan, MBA associate vice president of economic and industry forecasting. “The 30-year fixed rate was down three basis points to 3.17 percent, which is still 32 basis points higher than the low reported in December 2020. Even with a few weeks of lower rates, most borrowers have likely already refinanced, which is why activity has decreased in seven of the last eight weeks.
“The purchase market’s recent slide comes despite a strengthening economy and labor market,” Kan said. “Activity is still above year-ago levels, but accelerating home-price growth and low inventory has led to a decline in purchase applications in four of the last five weeks.”
The refinance share of mortgage activity increased to 60.6 percent of total applications from 60 percent the previous week. The adjustable-rate mortgage share of activity decreased to 3.5 percent of total applications.
The FHA share of total applications decreased to 10.7 percent from 11.3 percent the week prior. The VA share of total applications increased to 12.2 percent from 11.5 percent the week prior. The USDA share of total applications remained unchanged from 0.4 percent the week prior.