Mortgage applications decline for fourth consecutive week

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Home buyers are pulling back. Here’s why.

There was a time last year when mortgage lenders were extremely overwhelmed with mortgage applications. But in recent weeks, things have cooled. In fact, mortgage loan applications fell for the fourth week in a row, according to the Mortgage Bankers Association. Here are some of the reasons why.

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1. House prices have gone up

Home values ​​have skyrocketed during the pandemic, making properties less affordable, which could explain why mortgage applications are dropping. The median price of homes in the United States reached $ 291,000 in February 2021. In contrast, in February 2020, homes sold for a median price of $ 260,000.

2. Mortgage rates have gone up

In early January, the average 30-year mortgage rate hovered around 2.75%. At the time of this writing, the average 30-year mortgage is available for around 3.3%. Rising mortgage rates are likely pushing some buyers away, even though current rates are still fairly competitive.

3. There is no house to buy

It is difficult to apply for a mortgage when there are no homes on the market. The number of homes for sale in February 2021 was down 11.9% from January 2021 and 42.0% from February 2020. This housing shortage is not new and the winter months have may have made matters worse, as stocks tend to be slower during this time.

Will the housing market open up this year?

Several factors could lead to an increase in available housing this year:

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  • Warmer weather: Spring is a more popular time to list homes, as it’s often easier to show the curb appeal of properties when the season cooperates. So there could be an increase in new home listings in April, May and June.
  • Widespread vaccination efforts: Sellers may be more willing to list their homes and host strangers for exhibitions and open houses once they feel better protected from COVID-19.
  • General economic recovery: Sellers can be more confident to list their homes once they are less worried about job loss and can support their moving plans.

If the housing inventory opens, it could help solve the problem of rising house prices, because as the supply of available housing increases, the demand from buyers could decrease. Of course, that doesn’t solve the problem of rising interest rates, and we might see those numbers climb even more over the course of the year.

However, since mortgage rates are still attractive at an all-time high, rates alone are unlikely to deter buyers in the coming months if stocks rise and home prices fall. As such, we might see an increase in mortgage applications later in the year, depending on how things move.

But will mortgage demands increase in the short term? This is the big question. We could see several weeks of downturn before mortgage activity picks up. It will be interesting to see how the data reads as homebuyers continue to grapple with today’s extremely tough housing market.

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