Lower Rates Causing Minimal Mortgage Application Increase

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The rates on conforming mortgage loans hit their lowest point in 6 months in the middle of May 2014. However, the decrease did not have a large effect on borrowers and especially on first-time home buyers. The traditionally busy spring house buying season has not gained momentum at least for the time being.

The average rate on a 30-year fixed mortgage reached 4.2% and the number of mortgage applications rose for a third week in a row. However, the increase for the week ending May 16th was just 0.9% on a seasonally adjusted basis. On an unadjusted basis, the increase was 0.4%.

This minimal increase is due primarily to the increase in the number of mortgage refinance applications. Their number rose by 4% from the previous week. Existing homeowners reacted more quickly than home buyers. The number of purchase applications actually dropped by 3% from the week before. Despite weekly fluctuations, it is following a downward trend.

The increase in the home loan applications is too small for reaching last year’s levels. During the same week of 2013, the number of purchase applications was 12% higher. The purchase volume was over 10% higher. The refinance volume was 65% above its current level.

The drop in the mortgage rates is primarily due to the weaker markets in Europe. The external factors are likely to keep the rates down. However, this is expected to have the same minimal impact especially on home buyers. While rates of conforming loans are falling, they have still not reached their level from a year ago.

At the same time, the increase in house prices which is around 11% on an annual basis is much higher compared to the increase in income. This leaves many prospect buyers without sufficient cash for making the down payment. The average debt-to-income ratio is climbing and this has a negative impact on prospect buyers as well.

The low demand for mortgage loans is likely to remain.

Refinance at
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