The number of people applying for a mortgage — either to refinance or buy a home — plunged by the largest amount in more than 11 years, according to the Mortgage Bankers Association.
The MBA’s index that measures application volume dropped 29.4% last week from the previous one. That was the biggest decrease — percentage-wise — since January 2009, the MBA found.
Refinancing applications led the decline, falling 33.8% versus the previous week, while applications to purchase a home slipped 14.6%.
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The declines come as coronavirus fears continue to hurt open houses and chase some homebuyers away. Fears over job security and higher interest rates recently have also dampened refinancing and purchases.
“People are wondering, ‘Will I keep my job and paycheck?’” said Danielle Hale, chief economist at realtor.com. “This uncertainty, which generally causes people to pause when making major decisions, is driving some of the reduction in applications.”
‘Let me think about it’
Mortgage rates for a 30-fixed-year hit 3.65% last week, according to Freddie Mac. Rates have been inching up since the first week of March, when they hit 3.29%, a 50-year low.
At that time, refinancing spiked with the number of applications hitting an 11-year-high for the week. Refinances made up 76.5% of all applications then. That share shrunk to 69.4% last week.
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“This was a big shift from just a few weeks ago when mortgage rates were near record lows and both buyers and owners flooded in to take advantage,” Hale said. “The volatility in rates has shifted the ‘Do I refinance?’ question from a no-brainer to a ‘let me think about it.’”
‘Several factors pushed rates higher’
Even though 10-year Treasury yields — which mortgage rates track — have remained low, the rate on the 30-year was at its highest level since mid-January last week, the MBA found.
“Several factors pushed rates higher,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting in a press release, “including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges.”
The increase in mortgage rates is also a result of actions from Congress, said Skylar Olsen, director of economic research at real estate site Zillow.com. Earlier Wednesday, Congress agreed on a $2 trillion dollar coronavirus relief package.
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“The big jump in mortgage rates was due to news that a very expensive relief package was coming,” Olsen said. “When the federal government needs cash in order to provide that kind of stimulus, they have to sell bonds that in turn influence interest rates.”
Experts see rate conditions easing in the upcoming weeks. One reason is the Federal Reserve’s recent commitment to purchase mortgage backed-securities to mollify liquidity constraints in the secondary market.
“Looking ahead, this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities could put downward pressure on mortgage rates,” Kan said, “allowing more homeowners to refinance.”