Low mortgage rates have housing market rebounding, even as home prices rise
Homebuyers are making up for a lot of lost time, and they're swarming into the housing market to take advantage of those incredibly low mortgage rates they've been hearing about.
Rates have been retreating to a series of all-time lows, and you can now get a 30-year fixed-rate mortgage at around 3% or less. New data on mortgage applications shows that as states come out of coronavirus lockdowns, buyers are eager to get out, go house shopping — and grab a low rate.
And they haven't been deterred much by home prices that are rising due to shortages of homes for sale in many parts of the country.
Homebuyers rush to borrow
Homebuyers are eager to buy and take advantage of low mortgage rates.
Mortgage applications to buy homes rose another 5% last week and were up an impressive 18% versus the same week a year ago, the Mortgage Bankers Association reported Wednesday. In mid-April, requests for those loans were down 35% from last year.
"The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring," says Joel Kan, the trade group's vice president of forecasting, in a news release.
Demand for what people in the biz call "purchase loans" has been making a big comeback: Applications for those mortgages have risen for seven weeks in a row.
Historically low mortgage rates have been beckoning buyers. The mortgage bankers say 30-year mortgage rates have dropped to an all-time low average of 3.37% in their weekly survey. But mortgage giant Freddie Mac says its nearly 50-year old survey puts rates down at a record 3.15%, on average.
And it gets even better: Homebuyers with good credit who know how to comparison shop can now find 30-year fixed-rate mortgages at rates as low as 2.5%.
Kan says it remains to be seen if the rise in homebuyer borrowing has staying power.
"There are still many households affected by the widespread job losses and current economic downturn," he says. "High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months."
The low supply of homes on the market has pushing house prices higher. CoreLogic reported this week that prices in April were up 5.4% from a year ago, but the data firm forecasts that prices will be down 1.3% by April of next year.
Refinancing slows, despite the potential savings
Refinancing can save homeowners hundreds, if not thousands, of dollars a year.
Overall mortgage applications were down 3.9% during the week ending May 29, led by a 9% drop in demand for refinance loans.
"After reaching a peak of 76%, refinances now account for less than 60% of activity, and the index is now at its lowest level since February 21," says Kan.
Refinance requests made up 59.5% of all mortgage applications last week, down from 62.6% a week earlier. But refinance applications are still running at more than double the level from a year ago.
Refinancing into lower mortgage rates has given homeowners a welcome way to cut their monthly budgets in the midst of the coronavirus pandemic's soaring unemployment and financial market gyrations.
Earlier this spring, LendingTree suggested that refinancing a mortgage taken out just last year — when rates were nearly 1 full percentage point higher — could cut a household's monthly payment by $60 a month for every $100,000 borrowed.
But getting a great rate takes some shopping around. More recent research from LendingTree found different lenders can offer the same homeowner vastly different refinance rates, and if you take the first rate you're offered you can pay as much as $28,000 in extra interest over the life of your refi loan.
Homeowners and homebuyers are likely to keep finding attractive mortgage rates, says Zillow economist Matthew Speakman, writing in his blog.
"As stock markets have performed strongly in recent weeks, the fact that rates have fallen and remained steady suggests that rates are poised to remain low," Speakman says.
To find the lowest mortgage rates available to you, gather and compare rates from several lenders. When you find something that looks good, try to lock it — so it won't slip through your fingers.
