Homebuyers Step Back Amid Low Mortgage Rates
Mortgage rates in the U.S. continue to fall to record lows. The average contract interest rate for a 30-year fixed-rate mortgage fell to a record low 3.14% last week compared to 3.20% the previous week.
Despite record low rates, potential homebuyers are becoming less active as total mortgage application volume fell 5.1% from the previous week according to the Mortgage Bankers Association's seasonally adjusted index.
Refinance applications dropped 7% last week but remained 84% higher than the same period a year ago. Mortgage data and analytics firm Black Knight calculates that nearly 18 million borrowers could still benefit from refinancing their mortgage. Applications to purchase a home dropped 2% last week and now stand 22% higher than the same period last year.
With the average purchase loan amount rising, fears are growing that some first-time homebuyers are getting priced out of the market.
"Purchase loan balances continued to climb, which is perhaps a sign that the still-weak job market and tighter credit for government loans are constraining some first-time homebuyers," MBA forecaster Joel Kan said.
Another sign that first-time homebuyers may be stepping back is the average rate for a FHA-backed 30-year fixed-rate mortgage has started to increase. These types of mortgages accounted for 35% of closed sales in June, according to the National Association of Realtors.
Home prices continue to rise as low rates and tight supply pushed the average median home price in July up 8.5% from the same period last year to $349,000, according to realtor.com‘s Housing Recovery Index. 48 of the 50 largest metros areas in the U.S. saw the median listing price jump in July compared to last July.
Inventory dropped by 34.8% in July from the same period a year earlier as none of the metro areas realtor.com tracks saw an increase in inventory. Inventory is going quicker than in June, when inventory dropped by 26.5% from the previous year.
Perhaps confirming the fears over the effects of the coronavirus on city living, condos are faring much worse than single family homes. The median condo sale prices in the U.S. fell by 1.4% in June compared to the same period last year. Condo sales fell by a seasonally adjusted 31.3% in June and 53.5% in May compared to last year, while single family home sales fell by 11.9% and 27.6% in June and May, respectively.
"The pandemic has fundamentally changed what a lot of buyers are looking for in a home," Redfin economist Taylor Marr said. "People are spending more time at home and less time at the office or school, and that means buyers want more space and private yards. And because of concerns about the virus, they aren't as interested in shared amenities like elevators, community pools and gyms, which have traditionally been benefits of condo living."
It will be interesting to see where the housing market goes from here as a mixture of low rates and inventory, high prices and an uncertain economy all work against each other.
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