Mortgage applications sink to pre-pandemic levels: Why this might be good news for buyers

Mortgage activity sank last week to its lowest level since the beginning of 2020, according to a recent survey. This comes at a time when the housing market typically reaches its annual peak.

The findings from the Mortgage Bankers Association's (MBA) weekly survey come as mortgage interest rates are historically low, but limited housing inventory and high home values make it difficult to purchase a home. As homebuying demand falls, though, it might signal a shift to a cooler housing market that's more friendly to buyers.

Even mortgage refinancing applications continue to drop, despite the fact that refinancing rates remain near record lows. 

If you've been considering buying a home or refinancing your mortgage, it's smart to act while rates are still low. Read on to learn more about the MBA's findings, and visit Credible to compare mortgage rates without affecting your credit score. 

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Buying a home is challenging right now, but it might get easier

The MBA's home purchase index is 14% lower than it was one year ago, suggesting a significant decrease in homebuying activity despite the fact that mortgage rates are still hovering near record lows. This is because the demand from homebuyers is outpacing the available inventory, causing home values to skyrocket and making the market more competitive across the spectrum. 

First-time homebuyers who are looking at the lower end of the home value spectrum are facing the most challenges, according to Joel Kan, MBA's associate vice president of economic and industry forecasting. While inventory is scarce across the board, it's most limited for buyers with lower price ranges. 

You’re not seeing a lot of activity on the lower side of the market. The lower end of the market is also where inventory’s the highest, that’s where it’s most competitive for buyers. That’s also where you’ll see the most home price growth, and that’s holding back a bit of purchase activity.  

- Joel Kan

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Not even low mortgage rates can prompt a higher demand for mortgages, simply because the inventory just isn't available. But, there's good news: Experts expect more inventory to flood the market this fall, as lumber and steel prices level out as the supply chain continues to recover post-pandemic.

But today's competitive mortgage rates won't last forever. The MBA estimates that average mortgage rates are expected to rise to 3.5% by the end of the year. Further out, interest rates on a 30-year mortgage will continue to rise over the next two years, hitting 4.2% in 2022 and 4.9% in 2023. That's compared with 2.8% in 2020.

If you're considering buying a home anytime soon, it's important to get prequalified now so you can take advantage of current rates. You can prequalify through multiple mortgage lenders at once on Credible without affecting your credit score. 

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Mortgage refi applications drop off, but it's still a good time to refinance 

While inventory may be keeping some potential buyers from taking out a mortgage, there's no reason why homeowners shouldn't consider refinancing their mortgages — and fast. Refinancing activity is 8% lower than it was one year ago, according to the MBA's index. But as mortgage rates are predicted to rise, refinancing becomes less and less alluring.

If you haven't yet refinanced your mortgage, consider doing so now while rates are still low. To determine if refinancing is right for you, ask yourself:

• What's my current mortgage rate? Only refinance if you can secure a lower mortgage rate than what you're currently paying.
• What's my home equity? A good rule of thumb is that you should have at least 20% home equity, but you may be able to refinance with less.
• How long will I live in this house? Refinancing comes with closing costs, so make sure you've broken even with your savings before you plan to move again.
• What can I afford to pay each month? If you can afford to pay more toward your mortgage, think about refinancing to a shorter mortgage to pay it off faster and save money.

In most cases, mortgage refinancing can help you save money on your monthly payments, pay off your mortgage faster or pay less money in interest charges over the life of the loan by securing a lower interest rate. You can use Credible's mortgage calculator to estimate your monthly mortgage payment and decide if refinancing is right for you. Get in touch with a loan officer at Credible if you have any questions about the mortgage process.

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