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Demand for Mortgages Dips as Borrowers Wait for Even Lower Rates

Doug Whiteman
Demand for Mortgages Dips as Borrowers Wait for Even Lower Rates

Lenders are reporting a slump in applications for new mortgages, and part of the story is that some potential borrowers apparently got spoiled by last year's ultra-low mortgage rates. They're not content with today's rates that remain very low by historical standards.

But rates are unpredictable — and they could always go higher instead of falling back down.

While more requests for mortgages are coming from homebuyers, there are fewer applications from homeowners, a trade group reported Wednesday.

A slow time for mortgage applications

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Mortgage demand has slowed.

Overall mortgage applications fell 1.5% over the two weeks that ended Jan. 3, the Mortgage Bankers Association says.

Leading the way was a drop in refinance applications from homeowners. Those slid 8% last week, though they were up a solid 74% from a year ago, when mortgage rates were higher.

Refinances accounted for 58.9% of all mortgage activity last week.

Use this calculator to see how a refinance could cut your monthly mortgage payment.

Homeowners hope for better rates

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Homeowners will be willing to wait for lower interest rates.

Mortgage rates have leveled off in recent weeks, and that's a big reason for the decline in refis, says Mike Fratantoni, chief economist and senior vice president with the Mortgage Bankers Association.

"Homeowners would need to see a sharp drop in rates to reinvigorate the refinance wave seen in 2019," Fratantoni says.

Take a look at today's best mortgage rates where you live.

Owners rushed to take out new loans as 30-year mortgage rates dropped last summer to their lowest levels in three years, at just under 3.5%. They've climbed a bit since then and have hovered around 3.7% since early November.

Rates edged lower last week, with 30-year fixed-rate mortgages averaging 3.72% — down from 3.74% a week earlier, mortgage giant Freddie Mac reported. On 15-year fixed-rate home loans — a popular option among homeowners who refinance — rates slipped to an average 3.16%, from 3.19%.

Homeowners might still find they'll save money by refinancing, even if their current mortgage is from 2018.

A hot winter for homebuying

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Want to sell your house? It may not be difficult this winter.

Though refinances are down, mortgage "purchase applications" — that is, for loans to buy homes — last week were up 5% compared to two weeks earlier.

"The seasonally slow period from Thanksgiving to Jan. 1 was quite active this year, and that portends an active, early-spring market in 2020," says Corey Burr, senior vice president with Sotheby's International Realty in Chevy Chase, Maryland.

The new year has begun with homes selling at a better pace than in early 2019, notes Fratantoni.

"We expect that the strong job market will continue to support purchase activity this year, and the uptick in housing construction towards the end of last year should provide more inventory for prospective buyers," he says.

The government will release fresh numbers on jobs at the end of this week, and Freddie Mac will be out with a new mortgage rates survey on Thursday. The company has forecast that 30-year mortgage rates will rise only slightly in 2020, to an average 3.8%.

Burr says only two things can knock the housing market off balance this year: "a long spell of snowy, very cold weather, in which case the market activity will simply be postponed until warmer weather arrives, and an economic shock if the situation with Iran escalates out of control."