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Low inventory, escalating prices leading to weaker mortgage demands

Market Trend

Low inventory, escalating prices leading to weaker mortgage demands

Applications for mortgage purchase loans fell for the second week in a row at the end of April, and the drop probably had more to due with a lack of affordable homes on the market during this spring’s homebuying season than the slight uptick in rates.

That’s according to the Mortgage Bankers Association’s weekly mortgage application survey, which revealed a decline in applications for both conventional and government purchase applications, but an increase in average loan sizes.

“This is a sign that the competitive purchase market, driven by low housing inventory and high demand, is pushing prices higher and weighing down on activity,” MBA economist Joel Kan said in a statement. “The higher prices are also affecting the mix of activity, with stronger growth in purchase loans with larger-than-average balances.”

After two months of declines, pending-home sales grew 1.9 percent in March, according to the most recent report from the National Association of Realtors. But CoreLogic data shows demand from millennials fueled the biggest home price gains in 15 years, with national home prices up 11.3 percent from a year ago in March.

Kan called the MBA survey results “a mixed bag,” with mortgage rates slightly higher and refinance applications essentially unchanged.

For the week ending April 30, the MBA’s Refinance Index was up 0.1 percent from the previous week, but down 17 percent from a year ago. The seasonally adjusted Purchase Index fell 3 percent from a week earlier, although demand for purchase loans was up 24 percent from a year ago.

Applications to refinance accounted for 61.0 percent of applications, up from 60.6 percent the previous week. Only 3.9 percent of applications were for adjustable-rate mortgage (ARM) loans.

The MBA reported average rates for the following loan types:

  • Average rates on 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.18 percent from 3.17 percent, with points increasing to 0.34 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

  • For 30-year fixed-rate jumbo mortgages (balances greater than $548,250), rates averaged 3.31 percent, up from 3.28 percent, with points decreasing to 0.27 from 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

  • Borrowers seeking 30-year fixed-rate FHA mortgages were offered rates averaging 3.13 percent, up from 3.12 percent, with points decreasing to 0.22 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

  • Rates on 15-year fixed-rate mortgages, a popular option for refinancing, averaged 2.54 percent, down from 2.55 percent, with points increasing to 0.31 from 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

  • Rates on 5/1 ARMs averaged 2.76 percent, up from 2.59 percent, with points decreasing to 0.23 from 0.47 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.