Although mortgage rates came down slightly after seven consecutive weeks of increases, applications for refinancing and purchase loans both fell more significantly.
Rising rates have mortgage lenders pivoting from refinancing existing loans to providing purchase loans to homebuyers, but scarce inventory and rising home prices could make it harder to execute that strategy.
Mortgage refinance applications were down 3 percent from the previous week and 32 percent from a year ago during the week ending March 26, 2021, according to the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey.
And even though mortgage rates came down slightly after seven consecutive weeks of increases, purchase loan applications were also down 1 percent compared with the previous week. Compared to a year ago, purchase loan applications were up 39 percent. But keep in mind that at this time last year, the pandemic was already denting home sales. Looking back to the same week two years ago, purchase loan applications were up a more modest 6 percent.
“Many prospective homebuyers this spring are feeling the effects of higher rates and rapidly accelerating home prices,” MBA forecaster Joel Kan said in a statement. “Record-low inventory is pushing home-price growth at double the rate from a year ago, and even above the 10 percent growth rates seen in 2005. The housing market is in desperate need of more inventory to cool price growth and preserve affordability.”
The MBA’s weekly survey found that rates for 30-year, fixed-rate conforming mortgages decreased for the first time in nearly two months, to 3.33 percent. That was only a 3 basis point drop from the week before, however, and rates are nearly half a percentage point higher than at the beginning of the year.
“Higher mortgage rates continue to shut down refinance activity, as the pool of borrowers who can benefit from a refinance further shrinks,” Kan said.
In a March 10 forecast, economists at Fannie Mae said they expect mortgage refinancing volume will fall by 27 percent this year, to $2.114 trillion. A projected 13 percentage increase in purchase loan originations, to $1.819 trillion, would not make up all of that loss, with total 2021 mortgage originations projected to fall 12 percent, to $3.933 trillion.
Mortgage originations forecast
Source: Fannie Mae
Fannie Mae economists expect an even more dramatic drop in mortgage refinancing next year, with a year-over-year decline of 46 percent, to $1.146 trillion. Purchase loan volume is also projected to plateau next year, falling by 1 percent to $1.797 trillion.