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Home purchase applications rise as coronavirus slowdown begins to thaw

States are beginning to relax virus protocols, people are looking to buy

With a growing number of states indicating over the last week that they are moving toward relaxing the social distancing protocols put in place to prevent the further spread of COVID-19, it appears that the real estate market may be beginning to thaw.

In recent weeks, home purchase applications have declined sharply as people simply weren’t applying for mortgages, either because they couldn’t go see a home they might want to buy or because they could no longer afford it due to the coronavirus’ impact on the economy.

But that trend may be reversing, as new data from the Mortgage Bankers Association shows that home purchase mortgage applications recently rose to the highest level in nearly a month.

Beyond that, the largest states in the U.S. all saw an increase in purchase applications, lending more credence to the thought that the market may be waking back up.

“The news in this week’s release is that purchase applications, still recovering from a five-year low, increased 12% last week to the strongest level in almost a month,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“The 10 largest states had increases in purchase activity, which is potentially a sign of the start of an upturn in the pandemic-delayed spring home-buying season, as coronavirus lockdown restrictions slowly ease in various markets,” Kan added. “California and Washington continued to show increases in purchase activity, with New York seeing a significant gain after declines in five of the last six weeks.”

Overall, the volume of mortgage applications did drop 3.3% in the week ending April 24, 2020, but the drop was restricted to refinance applications.

According to the MBA, the Market Composite Index, a measure of mortgage loan application volume, fell 3.3% on a seasonally adjusted basis from one week earlier.

The Refinance Index dropped 7% from the previous week but was still 218% higher than the same week one year ago, a product of near-record lows in interest rates.

The seasonally adjusted Purchase Index increased 12% from one week earlier. The unadjusted Purchase Index increased 13% compared with the previous week but was 20% lower than the same week one year ago, although comparing April 2019 to April 2020 is not exactly an apples-to-apples comparison.

Given the state of the economy over the last two months, an uptick in home purchase application is a positive sign, according to Kan.

“Contributing to the uptick in purchase applications was that mortgage rates fell to another record low in MBA’s survey, with the 30-year fixed rate decreasing to 3.43%,” Kan said. “However, refinance activity declined 7%, as rates for refinances likely remained higher than those for purchase loans. Lenders are still working through pipelines at capacity, and observed changes in credit availability for refinance loans have also in turn impacted rates.”

The decline in refi activity is also seen in the share of total mortgage applications, as the share of refis fell from 75.4% in the previous week to 71.6% in this week’s report.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The Federal Housing Administration’s share of mortgage apps rose to 10.5% from 10.3% in the previous week.
  • The Department of Veterans Affairs’ share of applications fell from 13.8% to 13.3%.
  • The Department of Agriculture’s share of total applications increased from 0.4% to 0.5%.
  • Mortgage interest rates for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) fell to 3.43% from 3.45% the week before.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) fell to 3.72% from 3.81%.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 3.33% to 3.39%.
  • The average contract interest rate for 15-year fixed-rate mortgages decreased from 3.03% to 2.98%.
  • The average contract interest rate for 5/1 ARMs remained at 3.29%.

Note: All the interest rates mentioned above were for loans with 80% loan-to-value ratio, meaning the borrower had a down payment of 20%.

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