Over the last week, average mortgage interest rates have dropped slightly after a slight uptick. Still, the fall in applications continued.
“Purchase application volume continues to run ahead of last year’s pace, but after growing quite strongly in the first half of the year, the rate of improvement has decelerated this summer,” said Lynn Fisher, vice president of research and economics at the Mortgage Bankers Association.
Part of the “problem” lies in the fact that there in a finite number of people who are going to go out and buy a house, even when rates are as low as they have been. Sure, many analysts foresee rates continuing to drop, even to the point of rivaling the all-time lows set during 2012. Still…in order for people to take advantage of such crazy low rates, they would need to have trusted the financial fates so much that they were willing to wait, even with numbers being as low as 3.375 percent. Most people aren’t that patient, and it’s tough to blame them: Across the history of the mortgage, many buyers would have killed for rates this low.
That’s not to say applications won’t pick up if things drop to, say, 3.3 percent. That sort of number would shake even the most cautious of homebuyers out of the tree. But for now, while things are relatively stable, expect applications to trickle off a bit.
The other reason why applications aren’t as high as many foresaw? Well, to be honest, purchasing applications don’t historically correlate that well with short-term rates. Which is to say, people who are applying for a mortgage so they can purchase a new home don’t change direction too drastically based on week-to-week rate adjustments. That’s why purchase applications are only up 6 percent from last year, despite the significant difference in rates.
One demographic that does change its approach based on week-to-week rates is those who want to refinance. Black Knight Financial Services estimates that around 8.7 million homeowners could benefit by refinancing under the current circumstances and, by goodness, it seems that a good chunk of them are taking them up on it (if you want to see if you or a client is a good candidate for refinance, check out this post).
Refinance applications are up by a whopping 56 percent compared this time last year. And the funny thing about that high application rate? It’s still 4 percent lower than it was last week.
Odds are if you were looking for a mortgage in the last few months, you’ve already jumped onboard. If you’re still proceeding with caution, you may want to keep an eye out. A sudden drop in rates might provide your opportunity to lock it. Rates this low can’t—and won’t—last much longer.
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