Refi Demand Surges Despite Rates Above 7%: Here’s Why

Mortgage demand remained steady for the third consecutive week, with a slight uptick in total application volume. However, there was a notable divergence between those seeking new home purchases and those opting for refinancing to save money. While applications for home purchases decreased by 5% compared to the previous week, refinance applications surged by 10%, reflecting a 4% increase from the same period last year. The average interest rate for 30-year fixed-rate mortgages rose to 7.01%, influenced by signals from the Federal Reserve indicating a cautious approach to rate cuts amidst persistent inflation and robust economic indicators.

The increase in refinance applications contrasts with the typical trend of declining demand when rates rise. Homeowners may have rushed to refinance as rates increased, fearing further increases. Meanwhile, home purchase applications decreased, highlighting ongoing challenges in the housing market characterized by limited inventory and sustained high prices. Market watchers are keenly awaiting the release of the monthly consumer price report, which could have significant implications for mortgage rates, potentially prompting notable movements based on inflationary signals.

March New Home Purchase Mortgage Applications Rise by 6.2%

In March 2024, mortgage applications for new home purchases increased by 6.2% compared to last year, with a 1% rise from February 2024. Despite this growth, the pace was slower than usual for March, typically a month with a seasonal boost. Joel Kan, MBA’s Vice President, noted that while applications outpaced last year’s figures, the 6% annual growth rate was the slowest since September 2023. Affordability challenges persist for homebuyers due to significant home-price growth and mortgage rates of around 7%. The FHA share of applications rose in March, exceeding the average of the prior 12 months, possibly indicating increased first-time buyer activity.

MBA estimates new single-family home sales at a seasonally adjusted annual rate of 615,000 units in March 2024, a decline of 10.7% from February. On an unadjusted basis, there were 60,000 new home sales in March, down 3.2% from February. Conventional loans comprised the majority of loan applications at 63.0%, FHA loans accounted for 26.4%, and VA loans constituted 10.4%. The average loan size for new homes decreased slightly from $405,719 in February to $405,400 in March. MBA’s Builder Application Survey provides this data, enabling early estimates of new home sales volumes nationally, at the state, and metro levels. At the same time, the Census Bureau conducts official new home sales estimates every month.

Most Sellers Still Feel Lock-In Effect, Improving

A recent survey by Realtor.com reveals that nearly four in five home sellers considering buying a new property still feel stuck in their current homes due to lower interest rates. Although this figure seems discouraging, it’s actually improved slightly from the previous year, dropping from 82% to 79%. Moreover, many sellers who recently sold their homes believe they could have capitalized on a hotter housing market.

Homeowners are gradually adapting to this situation, influencing their selling timelines. Half of those feeling locked into their current rate plan to wait for rates to drop before selling, down from 56% in the previous year. Additionally, more sellers feel the urgency to sell soon for personal reasons, with 29% expressing this sentiment compared to 25% in 2023. However, the prospect of transitioning to higher interest rates is impacting their decisions, as seen in the declining number of sellers planning to buy another home simultaneously, dropping from 85% to 73%. Many anticipate their new mortgage rates to be the same as or higher than their current rates, raising concerns about affordability.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.