Mortgage Applications Decline for the Fourth Week in a Row

by Maurie Backman | Updated July 19, 2021 - First published on April 6, 2021

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Close-up of someone about to fill out a blank mortgage application. A key ring of a house sits beside the pen.

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Home buyers are pulling back. Here's why.

There was a point last year when mortgage lenders were extremely overwhelmed with home loan applications. But in recent weeks, things have cooled off. In fact, mortgage applications have decreased for the fourth week in a row, according to the Mortgage Bankers Association. These are some of the reasons why.

1. Home prices have increased

Home values have soared during the pandemic, making properties less affordable, which could explain why mortgage applications are down. The median U.S. home price reached $291,000 in February 2021. By contrast, in February 2020, homes sold for a median price of $260,000.

2. Mortgage rates have climbed

At the beginning of January, the average 30-year mortgage rate hovered around 2.75%. As of this writing, the average 30-year mortgage is available for about 3.3%. Climbing mortgage rates are likely pushing some buyers away, even though today's rates are still fairly competitive.

3. There are no homes to buy

It's hard to apply for a mortgage when there aren't homes on the market. The number of homes for sale in February 2021 was down 11.9% from January 2021 -- and down 42.0% from February 2020. This shortage of housing inventory isn't new, and the winter months may have made it worse, as inventory tends to be more sluggish during that time.

Will the housing market open up this year?

Several factors could lead to an uptick in available homes this year:

  • Warmer weather: Spring is a more popular time to list homes as it's often easier to show off properties' curb appeal when the season cooperates. So there could be a surge of new home listings in April, May, and June.
  • Widespread vaccination efforts: Sellers may be more willing to list their homes and welcome in strangers for showings and open houses once they feel they have better protection from COVID-19.
  • General economic recovery: Sellers may be more confident listing their homes once they're less worried about job loss and can shore up moving plans.

If housing inventory opens up, it could help solve the problem of inflated home prices, because as the supply of available homes increases, buyer demand could wane. Of course, that doesn't solve the problem of rising interest rates, and we could see those numbers climb even more during the year.

However, seeing as how mortgage rates are still attractive on a historic level, rates alone probably won't turn buyers off in the coming months if inventory goes up and home prices come down. As such, we could see an uptick in mortgage applications later on in the year, depending on how things shake out.

But will mortgage applications increase in the near term? That's the big question. We may see several more weeks of decline before mortgage activity increases again. It'll be interesting to see how the data reads as home buyers continue to grapple with today's extremely challenging housing market.

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