The volume of mortgage applications for home purchases jumped last week, boosted by historically low interest rates.
Purchase activity on a weekly basis increased by 5.3% — adjusting for the July 4 holiday — and was up 33% from the same week a year ago, according to the Mortgage Bankers Association, a trade organization.
Read more: When to refinance a mortgage
The surge in activity occurred as the average rate on the 30-fixed year mortgage hit a new low of 3.26%, according to the MBA.
“Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the impacts from a week of mostly positive economic data, such as June factory orders and payroll employment,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
In the last month, buyers have come off the sidelines as state economies reopen.They still face a challenged market with too few homes for sale, forcing many to stretch their wallets to close a deal.
“Today’s mortgages applications figures highlight the fact that buyers are active in today’s housing markets, seeking to adjust to the new normal, while taking advantage of record low interest rates,” said George Raitu, senior economist at Realtor.com, a real estate listing site. ”However, the numbers also underscore that real estate markets are struggling with an imbalance between rising demand and an extremely tight inventory, especially for the busy summer season.”
The average purchase loan size increased to another all time high of $365,700, according to the MBA, reflecting how the low inventory is pushing many buyers to bid higher to win homes.
“This imbalance is pushing prices strongly upward, forcing buyers to stretch their budgets,” Raitu said. “At the same time, the resurgence in coronavirus cases across the Sunbelt states is setting back some business re-openings, contributing to seller unease.”
While the volume of refinance applications edged up 0.4% from the prior week, it remains well above last year’s level, up 110.9% year over year. Still, the overall refinance share of mortgage activity dropped from 61.2% of total applications to 60.1%.
The low interest rate environment will likely continue, experts said, enticing both homeowners looking to reduce their monthly payment and buyers wanting to lock in an historically low rate.
“With the Federal Reserve committed to low interest rates for the foreseeable future, and bond investors concerned about the rocky economic recovery, mortgage rates are expected to remain low, and possibly break below the 3% threshold over the next few months,” said Raitu.