Mortgage applications rise as rates hit historic lows

In residential markets, demand has strengthened recently as mortgage applications for a home purchase increased for the third week in a row, rising 7% from the prior week. Buyers are incentivized by historically low rates, but finding (and financing) that new house has become somewhat more challenging in the COVID era.

“You can’t buy what isn’t for sale” applies now more than ever as inventory (properties listed for sale) has tightened even further. Many potential sellers have chosen to wait out the pandemic, and although virtual tours are more popular and practical than ever, there really is no substitute to seeing a property in person.

Lenders are also becoming more conservative due to concerns over forbearance and default as jobless claims continue to pour in due to slowing economic activity. All the while, home sales prices have remained strong, extending a long-established trend of year-over-year price gains. The nationwide median sales price has now posted year-over-year gains for 97 consecutive months, while the streak is 29 months for Alabama.

Mortgage rates reached a record low as the average contract interest rate for a 30-year fixed mortgage declined from 3.43% to 3.40%, begging the question, “how much lower can rates really go?” On the refinance side, applications fell 2% for the week, but increased 210% year-over-year, when rates were more than a full percentage point higher.

Speaking to the rise in mortgage applications, KC Conway, ACRE’s director of research and corporate engagement, said, “Public Home Builders are telling us that traffic is predominantly urban millennials moving out of high dense and expensive MF and in the more dense cities.  That would suggest the purchase applications may be skewed to the lower price segments – and mostly for new home communities in the suburbs with vacant homes available to tour and not the broader housing market.”

As they say, demand for housing never goes to zero. Even in a pandemic, families with young children will outgrow their houses. Some will relocate for work or another reason altogether. And many will stay put for the time being, or forever, (why move if you don’t have to?) but almost everyone’s housing needs/wants will shift eventually, given a long enough horizon.

As to value, the pandemic has, if anything, highlighted the value of housing. It’s a necessity, but even more so when one has to shelter in place. As people spend more time in their houses than ever before, the value (or lack thereof) of one’s current housing situation becomes even more apparent, and it would not be surprising to see a large wave of buyers emerge once the pandemic has been contained to a greater degree.

This week’s episode of the Real Estate Matters podcast focuses on many of the topics mentioned in this article and features the latest data of housing starts and new construction in Alabama.

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