by Maurie Backman | April 6, 2021
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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.
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.
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.
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.
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Several factors could lead to an uptick in available homes this year:
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.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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