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Mortgage applications fall significantly as coronavirus continues to hit housing market

The conventional and government indices drop to the lowest level in March

After reaching a near 11-year high just a few weeks ago, mortgage applications declined for the second consecutive week as the coronavirus that causes COVID-19 continues to create instability in the housing market.

According to the Mortgage Bankers Association, mortgage applications dropped 29.4% for the week ending on March 20, 2020. On an unadjusted basis, the Index sat 29% below the previous week’s rate.

Joel Kan, MBA’s vice president of economic and industry forecasting, said the retreat is likely attributed to an uptick in mortgage rates, which is now keeping many homeowners from refinancing their homes.

The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels,” Kan said. “Several factors pushed rates higher, including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges.”

“With these higher rates, refinance activity fell 34%, and both the conventional and government indices dropped to their lowest level in a month,” he said.

Despite the decline, the MBA indicates the Refinance Index remains 195% higher than the same week in 2019, and Kan hints at a likely turnaround in the weeks to come.

“Looking ahead, this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance,” he said.

Nevertheless, Kan reports trouble in the purchase market as well, as purchase applications also declined this week due to market uncertainty.

According to the MBA, the seasonally adjusted Purchase Index decreased 15% and the unadjusted Purchase Index fell 14%, remaining 11% lower than the same week in 2019.

 “Home purchase applications were notably impacted by rising rates and the widespread economic disruption and uncertainty over household employment and incomes,” Kan said. “Last week’s purchase index fell 15% to its lowest level since August 2019. Compared to a year ago, purchase applications were down 11% – the first year-over-year decline in over three months,” he said.

As the economy continues to weaken, Kan warns potential homebuyers might hold off on purchasing homes until there is a slowdown in the spread of the coronavirus and more clarity on the economic outlook.

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

  • The refinance share of mortgage activity decreased to 69.3% of total applications from last week’s 74.5%
  • The adjustable-rate mortgage share of activity decreased to 6.1% of total applications.
  • The Federal Housing Administration‘s share of mortgage apps rose to 8.4% from 7.3% last week.
  • The Department of Veterans Affairs’ share of applications fell to 12.5% from 14.5% the previous week.
  • The Department of Agriculture’s share of total applications held steady the prior week’s 0.4%.
  • Mortgage interest rates for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.82% from last week’s 3.74%.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.84% from 3.77% one week before.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.69% from last week’s 3.71%.
  • The average contract interest rate for 15-year fixed-rate mortgages grew to 3.28% from last week’s 3.10%.
  • The average contract interest rate for 5/1 ARMs rose to 3.38% from last week’s 3.19%.

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