Mortgage applications fall, led by a refi dip
Overall mortgage activity slid 2.4% last week, the Mortgage Bankers Association just reported.
The decrease was led by a 4% drop in refinance applications. Refi demand is still strong — it accounted for 66.7% of all mortgage activity last week and was up 2% from a year ago — but the significant week-over-week decline may seem surprising, given that mortgage rates are still cheap.
The average for a 30-year fixed-rate home loan held steady last week at 3.03%, in the MBA's survey. Rates are lower, but also unchanged, in the weekly survey from mortgage giant Freddie Mac: It has 30-year loans averaging 2.78% this week.
Joel Kan, the MBA's forecaster, attributes the dropping refinance numbers to homeowners holding out for even better deals.
"Despite low rates, refinance applications declined, with some borrowers still waiting for rates to drop even lower," Kan said in a statement. "Recent uncertainty around the economy and pandemic have kept rates low over the past month, which is why the refinance index has oscillated around these levels."
Plus, many homeowners already have refinanced, says Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C.
"Mortgage activity will spike only if rates drop by a quarter to a half percent," Burr says.
But how likely is that?
Signs point to higher mortgage rates
If Kan is correct, and homebuyers are waiting for rates to fall further before they'll move forward with refinances, they could be making a risky bet.
While it’s true that the first waves of COVID-19 crippled the U.S. economy, the reason was that state and local politicians restricted business activity to try to control the virus. There's no appetite to do the same thing now, even though, by one measure, new COVID cases have reached an eight-month high.
Not only are businesses open, but they’re hiring. The government reported that almost 1.8 million jobs were created in the U.S. in June and July. If people are working, they’re spending — and if they’re spending, the nation's pandemic recovery should stay on track.
The combination of strong jobs numbers and abnormally high inflation could cause the Federal Reserve to scale back a pair of programs that have helped keep the pressure off mortgage rates.
The Fed has been buying billions of dollars in Treasury bonds and mortgage-backed securities every month during the pandemic, and that has stabilized the economy and has indirectly held down mortgage rates. Once Fed policymakers begin tapering their purchases, mortgage rates should start climbing.
How high they’ll go, and just how fast they’ll rise, remains to be seen.
"Only a crystal ball can tell us that at this point," Burr says.
Score a low rate while they last
If you’re a homeowner with a little equity built up and a decent credit score, refinancing could save you a pile of money. A recent Zillow report found almost half of the homeowners who refinanced between April 2020 and April 2021 are now saving $300 or more each month.
But getting the lowest possible mortgage rate that will save you the most money generally takes a little effort.
Lenders want to be in business with people they consider low-risk. They won’t view you that way if you’re carrying a bunch of nagging, high interest debts. So, consider rolling those into a single, lower-interest debt consolidation loan.
When the time comes to apply for a refinance, don't simply take your business to the first lender who claims to offer "the best rates around." They pretty much all say that. Instead, compare rates from at least five lenders to find the best deal for your area and for a person with your credit profile.
And if a refinance won't work for you, you can still slash the cost of homeownership — by paying less for homeowners insurance. When the time comes to renew your coverage, a little comparison shopping could save you hundreds of dollars a year.
The same strategy can ensure you don’t overpay on car insurance, too.