Mortgage Demand Hits Lowest Level in 2 Months: Should You Buy a Home Today?

It looks like buyers are holding off on applying for mortgages. Should you?

Buyers have been clamoring to purchase homes this year due to historically low mortgage rates. But recently, mortgage activity has slowed.

Total mortgage application volume fell 1.9% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That includes applications for new purchase mortgages as well as refinances.

All told, mortgage volume has reached its lowest level in two months. And that's coming at a time when interest rates on both purchase mortgages and refinances are still quite competitive.

Should you get a mortgage today?

Mortgage applicants have been pulling back despite competitive interest rates on home loans. That may lead you to reassess your home-buying plans too.

A big reason some buyers may be holding off on getting a mortgage is that home prices are still quite inflated on a national level. As of June, home prices were up 18.6% on a year-over-year basis, according to the S&P CoreLogic Case-Shiller national home price index. That's the most recent month for which this data is available, and it's also the largest annual gain since 1987. So it's not surprising some people may not want to purchase a home right now.

What's more, there's currently not a lot of housing inventory to choose from. The supply of available homes was down 12% year over year as of July, according to the National Association of Realtors. And while inventory has picked up a bit in recent months, there's not nearly enough supply to meet buyer demand. The result? Buyers are being forced to not only pay more for homes, but also to compromise on their wish lists.

It's for these reasons that you may want to hold off on buying a home, despite the fact that mortgage rates are still looking attractive. If you purchase a home today, you might save some money by virtue of a low interest rate on your mortgage. But that savings may be more than wiped out when you account for a larger mortgage amount. Plus, you might struggle to find a home that really checks off all the right boxes for you.

When will home prices start to come down?

The basic laws of supply and demand tell us that when a commodity in short supply becomes widely available again, its price should start to drop. That's what we can expect in the housing market.

But the question remains -- when will inventory start to pick up? And we just don't know the answer.

It could be that many potential sellers are trying to ride out the pandemic before listing their homes. Given that coronavirus cases are still surging across the country, we're unfortunately nowhere close to being out of that situation. And so it could be that housing inventory doesn't pick up substantially until 2022.

If you're having a hard time finding an affordable home in today's market, then waiting to buy makes sense, especially if you can stay in your current home for a while and aren't facing pressure to move. There's a good chance mortgage rates will stay low well into 2022 and quite possibly beyond, so there's no reason to push yourself to buy a home today if the numbers don't make sense.