Mortgage Applications Drop 1.3% but Could Surge Once Spring Inventory Hits
There was a decline in mortgage applications last week, but that could change soon.
While today's mortgage rates are still pretty attractive on a historical basis, it's hard to ignore the fact that they've been climbing steadily since mid-February. In fact, mortgage applications fell 1.3% for the week ending March 5, according to the Mortgage Bankers Association, and rising rates were likely a strong contributing factor.
Still, there's no reason to think mortgage applications will continue to drop week over week. In fact, the opposite could happen as the prime listing season kicks into gear.
Spring could bring a surge in inventory
One big challenge home buyers have faced over the past six months is a historically low level of available homes on the market. Part of that can be attributed to the health concerns and economic uncertainty brought on by the coronavirus pandemic. But also, property listings tend to be sluggish during the winter months, making it a hard time to buy.
For one thing, it's harder to show off homes' curb appeal when there's snow and slush everywhere. Also, shorter days make evening showings a challenge -- real estate agents can't highlight a home's natural light when it gets dark at 5 p.m.
But once spring arrives, we could see a substantial increase in listings as more sellers put their homes on the market. And that could, in turn, result in an uptick in mortgage applications.
Should you plan to buy a home this spring?
If you've been searching for a home in today's tight market, you may find that you have better luck once April and May roll around. Similarly, if you've held off on house-hunting to avoid the frustration of searching through slim pickings, spring may be a good time to look. Even if mortgage rates continue to climb over the next several weeks, there's a good chance they'll still be competitive a month or two from now. And with more inventory to choose from, you may find that it becomes much easier to get an offer on a house accepted.
Of course, if you're planning to buy a home this spring, you'll need to make sure you're a strong mortgage candidate. To that end, you'll want:
- A good credit score: A score in the mid-700s or higher is ideal and will put you in a great position to snag a low interest rate on a mortgage.
- A low debt-to-income ratio: The lower that number, the more confidence a lender will have in your ability to repay your home loan.
- A down payment for your home: An ideal down payment is 20% for a conventional loan, though some lenders might accept less. (Other loan products let you make a lower down payment, like FHA loans.)
- A steady job: If you're thinking of switching careers, you may want to wait until you have a mortgage in place.
There's a good chance housing inventory will look very different once the weather warms up. Not only is spring historically a popular time to sell a home, but as more people get vaccinated against COVID-19, things could improve on the pandemic front as well. Once that happens, sellers may be more motivated to list their properties (or welcome prospective buyers into their homes to look around). If you're hoping to buy, do what you can to make yourself as appealing to mortgage lenders as possible. That way, if rates do climb even further, you might still walk away with a very good deal on your home loan.
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