Buyers hang on while homeowners retreat

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Mortgage applications fell 3.1% for the week ending June 4, the Mortgage Bankers Association reported on Wednesday.

A 5% drop in refi activity led the decline, and refinance loans made up a smaller share of overall mortgage activity, too — falling from 61.3% to 60.4%, the lowest level since April.

“So many homeowners have refinanced over the past year that any upswing in mortgage refinance numbers will come only if rates retest their lows from last year,” Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C., tells MoneyWise. "Otherwise, if rates stay level, the refinance demand will be tepid."

Applications for mortgages to purchase homes were up a slight 0.3% from a week earlier, but were down 24% from the same week last year.

The large annual decline, says Joel Kan, the mortgage bankers' chief forecaster, resulted from Memorial Day 2021 being compared against a non-holiday week last year, and against a big jump in applications last May when the pandemic’s initial lockdowns started to lift.

Strengthening economy = higher mortgage rates

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Mortgage demand is slumping, even though mortgage rates are still cheap. The average rate on America’s most popular home loan — the 30-year fixed-rate mortgage — remains below 3%, according to the long-running survey from mortgage giant Freddie Mac. At 2.99%, the typical rate is among the lowest in history.

With rates at their current levels, some 14.1 homeowners can save an average $287 a month by refinancing, the mortgage data and technology provider Black Knight recently said.

Even as home prices continue to rise and inventory remains constrained, consumers remain hopeful that interest rates will stay low, says a recent survey on homebuyer sentiment from mortgage company Fannie Mae.

“Despite the challenging buying conditions, consumers do appear more intent to purchase on their next move, a preference that may be supported by the expectation of continued low mortgage rates, as well as the elevated savings rate during the pandemic," says Doug Duncan, Fannie Mae's chief economist.

Extra savings, he says, "may have allowed many to afford a down payment."

Borrowers may be hoping that low rates will stick around, but the Mortgage Bankers Association has forecast that 30-year rates will rise to an average 3.5% by the end of 2021, and other experts say mortgage rates may be headed near 4% this year. Borrowing costs are expected to go up as the economy strengthens.

Find a lower rate — while you still can

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If you’re ready to buy or want to look into your options to refinance, make sure your credit score is solid enough to get the best rate on a mortgage. If you haven’t seen your score in a while, it’s easy to get a free look at your credit score.

Once you're ready to find a lender, keep in mind that several studies have shown comparison shopping will net you the most savings. So, be sure to check rates from at least five lenders.

And remember that when you apply for a mortgage, lenders will want to see signs you’ll be able to pay back your loan. It’s not going to look great if you’re carrying credit card balances and other high-interest debts. If that’s your situation, consider rolling those debts into a single, lower-interest debt consolidation loan.

You’ll cut the cost of your debt and potentially pay it off sooner.

And if you own a home but aren’t in a position to refinance, there are other ways to save. When the time comes to renew your homeowners insurance policy, get quotes from multiple insurers to make sure you’re not paying more than you should.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Senior Reporter/Editor

Nancy Sarnoff is a senior reporter and editor at MoneyWise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.

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