Not more than a few months ago, the coronavirus outbreak brought mortgage applications down to 35% as compared to 2019. You may wonder why these mortgage applications and indexes are valuable well, it’s because these applications are considered as a gauge for future home buying activities.
According to the reports issued by the Mortgage Bankers Association,
“Mortgage rates again fell to an all-time low last week and homebuyers are rushing out to take advantage. Mortgage applications to purchase a home rose 5% last week, putting applications for home purchases 18% higher than a year ago.”
This sets the stage for a strong rebound in mortgage applications. As the states will reopen, more home buyers will enter the market as reported. These low rates are an attraction for the purchase market but, it does not seem to be attracting refinancers. Mortgage applications for refinancing are declining so far and have dropped to 9% this past week. This marks the 7th consecutive week of decline for refinancing.
A Mortgage Bankers Association economist, Joel Kan, said,
“The pent-up demand from home buyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring. However, there are still many households affected by widespread job losses and the current economic downturn. High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months.”
Speaking about the refinance applications, economist Joel Kan added,
“After reaching a peak of 76% earlier this year, refinances now account for less than 60% of activity, and the index is now at its lowest level since February 21.”
The Mortgage Bankers Association reports also state that, “the average contract interest rate for a 30-year fixed-rate mortgage decreased to a record low last week – 3.37% and this is probably heading even lower. The average rate probably will be 3.2% in the second quarter, down from 3.5% in the first quarter, and drop for the rest of the year. In the third quarter, it probably will be 3.1% and in the fourth quarter, it probably will average 3%. In 2021’s first quarter, the average probably will dip to 2.9%.”
Another look at the data collected from Mortgage Bankers Association states that
“Even as other parts of the economy tank, lenders will originate $1.5 trillion in refis in 2020, a 51% jump from 2019. That would be the highest level since 2003 when $2.5 trillion of mortgages were refinanced.”
Still, the lowest interest rates will be recorded after the Federal Reserve begins to buy mortgage-backed securities to boost bond demand and fuel the engines of the credit markets and it will probably head even lower than this as supported by the data provided by Mortgage Bankers Association.
Apart from this, it is said that GDP will likely fall to 5.3% for the year. This will occur after a 37% drop in the second quarter followed by a rebound.