Demand Peaks In US Housing Market, with a 30% Increase In Weekly Mortgage Applications

• Mortgage rates are currently at one of the lowest points in history, prompting borrowers to refinance or buy new homes.
• Currently, mortgage rates stand at 3.87% for mortgage loans of up to $510,400.
• Increasing demand may lead to a shortage of new houses, causing a spike in housing prices and potentially leave many without a home.

The mortgage market in the US has witnessed a very good start this year, with refinances and loans for new homes keeping the market alive. According to reported figures by the Mortgage Bankers Association, the number of applications for mortgages went up by 30.2% during the second week of January, compared to the first week.

This spike is largely driven due to refinancing applications, which have come as a result of historically low mortgage rates that prevail in the US housing market at this time. Applications to refinance increased in number by around 43% in the second week, on a week-by-week basis. Compared to last year’s figures, this number was higher by around 109%. Out of the total mortgage applications last week, approx. 63% pertained to refinancing. The week prior, this share stood at around 59%.

Mortgage rates are currently at one of the lowest points in history. A 30-year mortgage contract is currently going for an average rate of 3.87% for loan amounts of under $510,401. This rate was 3.91% back in September 2019. Loans that require a downpayment of 20% also witnessed a decrease in points of 0.02, which also included their origination fee. On a year-by-year basis, this is a decline of 87 basis points.

According to economists, there has been an increase in refinancing for mortgages belonging to both the conventional borrower as well as the government. However, this surge is still incomparable to the refinancing surge that occurred during the final quarter of 2019.

Apart from refinancers, the number of applications to buy a new home also increased by 16% on a weekly basis, and by 8% on a YoY comparison. According to reported data, the highest number of mortgages have been purchased during this time since October 2009.

It became evident that the demand for new houses was peaking at this time of the year since real estate agents had to conduct open houses as early as the first weekend of this year. Open houses are usually done sometime in February. Experts have linked lower rates and a stabilizing job market as the two core reasons behind the surge in the demand for new homes.

However, this fast-rising demand is not being met with an equally proportional increase in supply, and this can soon cause a shortage that can eventually create an increase in price. This may not be a favorable scenario for those in a financially tough spot at this time, as they may have to leave homes to make room for more affluent buyers.