Mortgage Applications Drop Despite Lower Rates

Mortgage rates have come down in recent weeks -- but applications are down nonetheless.

Though mortgage rates started out the year near historic lows, they began rising in February and continued to do so into April. But over the past few weeks, rates for new purchase mortgages as well as refinances have come down. Still, applicants aren't exactly jumping to get a mortgage. For the week ending April 23, the Mortgage Bankers Association reports that applications declined 2.5% compared to the previous week.

Why the drop?

A decrease in applications for new purchase mortgages could stem from the fact that there's record low inventory right now. And if there are no homes to buy, there's no sense in applying for a mortgage.

Refinances, however, are a different story. There are plenty of homeowners who could save money by getting a new mortgage, so it'll be interesting to see if those numbers pick up in the coming weeks (although many homeowners refinanced already, back when rates were really sitting at lows).

Will mortgage rates trend upward in May?

It's too soon to know what mortgage rates will look like in the coming month. Back in March and into early April, it seemed like rates would keep going up, but the past few weeks have seen pretty steady declines.

That said, even if rates come back up in May, they're likely to remain competitive on a historical basis. In fact, rates should stay fairly low for the remainder of the year, which means buyers should have plenty of opportunity to lock in an affordable home loan -- that is, if they can find a home to buy.

Will housing inventory open up?

Usually, the spring season is when lots of homes hit the market. So far, that doesn't appear to be happening this year. However, it's also important to remember that there's a pandemic and economic crisis at play -- and that some sellers may be hesitant to list their homes based on those factors. But as vaccines roll out to the public and things improve with regard to the coronavirus outbreak, more sellers may be able to get on board with listing and showing their properties. Similarly, if the economy picks up, sellers may feel better about listing their homes and making major financial changes in their own lives.

So while right now is a frustrating time to buy, things could improve as 2021 trudges along. Buyers who have had a hard time finding homes within their budgets may be better served sitting tight and waiting things out, because while mortgage rates are still very competitive right now, home prices are anything but. And the fact that there are so few properties to purchase means that, in addition to higher prices, buyers could end up having to settle for homes that don't really meet their needs. That's just a lose-lose situation.

Refinance candidates, on the other hand, may want to get moving and apply while rates are looking a bit better. Waiting to refinance could mean missing out on the lower rates that are available today.