A real estate agent prepares a home for viewing in Venice, California.
Anne Cusack | Los Angeles Times | Getty Images
What was expected to be a mundane year in the mortgage market was anything but: a sharp decline in housing demand at the start of the pandemic took a hairpin turn and kept rising, and the average interest rate on the popular 30-year fixed mortgage set no less than 15 record lows.
Mortgage demand ended the year significantly higher than 2019, but seems to cool down a bit before the holidays. According to the seasonally adjusted index of the Mortgage Bankers Association, the total number of mortgage applications has increased by 0.8% last week from last week.
Mortgage rates ended just 1 basis point higher than the last low. The average contract rate for 30-year fixed-rate mortgages and conforming loan balances ($ 510,400 or less) increased from 2.85% to 2.86%, with points remaining unchanged at 0.33 (including the origination fee) for loans with a deposit of 20%. That is a full percentage point lower than a year ago.
Low rates continue to drive refinancing volume, which rose 4% this week and was a whopping 124% higher than a year ago. The refinancing share of the mortgage activity rose to 74.8% of the total number of applications, from 72.7% last week.
“Last week’s rise in refinance applications was driven by FHA and VA activity, while conventional refinances showed a slight decline,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
Mortgage applications to buy a home were down 5% this week, but were 26% higher than a year ago. That’s the second drop in three weeks, as potential buyers face a serious housing shortage and rapidly rising prices. The supply of homes for sale fell to an all-time low in late November, according to a Tuesday report by the National Association of Realtors.
The average purchase request loan balance hit another record high of $ 376,800 last week. This is because most of the sales activity takes place at the top end of the market, where the supply is greater. The downside is the weakest supply and the strongest price increases, which affects affordability.
“There are still signs of relative strength in the housing market as 2020 ends. But housing affordability will be worth watching next year,” Kan said.