Homebuyers have largely been hunkered down since the coronavirus crisis began, but the latest numbers on mortgage applications show buyers are starting to hit the real estate market again, especially in a few of the big Western states as COVID restrictions ease.
Buyers are being lured out by the lowest mortgage rates on record, a rare positive side effect of the coronavirus economic meltdown.
Rates just dropped to [yet another new all-time low in a trade group's weekly survey. In a separate survey this week, rates have edged up just slightly from an all-time low.
The savings for borrowers can be substantial, compared to loans offered a year ago.
Homebuyers shop and borrow, drawn by low rates
While overall mortgage applications inched up 0.1%, but demand for "purchase loans" — to buy homes, as opposed to refinancing — jumped 6% during the week ending May 1, the Mortgage Bankers Association, or MBA, reported last week.
That happened as the average for a 30-year fixed-rate mortgage sank to yet another record-low in the trade group's weekly survey: 3.40%.
On Thursday, mortgage giant Freddie Mac reported that 30-year rates in its long-standing weekly survey edged up to an average 3.26%, from the previous week's record-low of 3.23%. Freddie Mac has forecast that rates will average a low 3.3% throughout this year.
"Historically low mortgage interest rates are the anchor keeping the market stable," says Corey Burr, senior vice president with Sotheby's International Realty in Chevy Chase, Maryland. "Without these rates, most active buyers would probably remain on the sidelines."
Plus, as states start to reopen from COVID-19, pent-up demand to buy homes is being unleashed, says Mike Fratantoni, the MBA's chief economist.
"Purchase volume increased for the third week in a row, led by strong growth in Arizona, Texas and California," Fratantoni says.
In California, mortgage applications from homebuyers surged 10.1% last week and 17.2% the week before, according to MBA data.
Nationwide, the pandemic and the lockdowns crushed what might have been a solid spring homebuying season. But Burr says the housing market should make up its lost ground.
"I expect we will see demand stretch deeper into the summer and fall months this year," he says.
Refinancing slows a bit
Applications for mortgage refinance loans have slipped 2%, the mortgage bankers say.
"Despite lower rates, refinance applications dropped, as many lenders are offering higher rates for refinances than for purchase loans," says Fratantoni.
But demand for refi loans was up 210% compared to the same week a year ago. Put another way, applications were more than triple what lenders were dealing with during late April of 2019.
Still, refinances fell to 70% of all mortgage applications last week, from 71.6% the previous week.
If you're a homeowner and haven't refinanced yet, a refi can save you a lot of money, even if your current mortgage is relatively young. Refinancing a loan taken out just one year ago can cut your monthly payment by $60 for every $100,000 you borrow, LendingTree recently reported.
Burr is hoping interest rates will remain low and won't be pushed up by all the borrowing the government has been doing to pay for stimulus checks and other coronavirus relief for Americans.
"Many homeowners have refinanced into super-low 30-year, fixed mortgages, and [if rates do take off] it will take great motivation for them to abandon those loans if they do plan to buy new properties with a higher-rate mortgage," he says.
In order to find a super-low refinance rate, you must shop around. Gather and compare mortgage offers from at least three lenders, because some lenders' rates can be much higher than what others are offering — even when surveys are saying that average rates are at record lows.