Why Did Mortgage Demand Jump as Interest Rates Reach Lowest Point in Months?
Consumers returned from the holidays to find mortgage rates at their lowest point since September, resulting in dramatic demand that pushed applications up 28% week-over-week, according to the Mortgage Bankers Association’s seasonally adjusted index.
Average Interest Rate
The average contract interest rate for 30-year fixed mortgages with conforming loan balances ($726,200 or less) dropped to 6.23% from 6.42%, with points set at 0.67 (including origination fees) for those taking out loans with 20% down payments. Rates hit a recent high of around 7.2% in October on the MBA’s survey but closed out 2020 at 6.58%.
Last January, the average rate was 3.64%. Refinance demand saw an even bigger jump of 34%, yet it was still 81% lower than during the same week last year – bringing the refinance share of total mortgage activity up to 31.2%.
Increased Applications
Applications for mortgages used to purchase a home increased 25%, though they remain 35% below pre-pandemic levels recorded this time last year.
According to Mike Fratantoni, Senior Vice President and Chief Economist of the MBA, “Lower mortgage rates and more homes on the market will help first-time homebuyers better afford properties as we enter into spring buying season”. Redfin data shows that active listings are about 21% higher than one year ago – due primarily to longer dwell times and fewer sales transactions – while new listings are 22% lower in comparison with 12 months ago.