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Demand for mortgages to buy homes is continuing to dwindle, suggesting that the real estate market faces a discouraging summer.
The volume of home-purchase mortgage applications dropped a seasonally-adjusted 6 percent in the week ending
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The report also found that although 30-year fixed mortgage rates fell to 4.81 percent, demand for mortgage refinancings declined. Application volume dropped more than 14 percent during the period. John Bancroft, the executive editor of Inside Mortgage Finance, points to "burnout" as a key factor behind the development. "Everybody who has had a chance to refinance has taken advantage of [it]." He also says declining home prices have made refinancing impossible for many property owners. "In order for them to refinance, they would have to put cash into the transaction," Bancroft says.
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The slowdown in mortgage demand is occurring in the face of market forces that typically make home purchases more attractive to consumers. Real estate values have fallen sharply from their peaks during the housing boom, helping restore affordability to the market. Mortgage rates are extremely low. And even the labor market appears to be stabilizing after shedding millions of jobs.
But Gumbinger notes that some would-be home buyers may be holding off until prices begin a sustainable recovery. And even though mortgage rates are low, financing costs are only one of the components that go into the decision to purchase a home -- and one's employment outlook is a much bigger factor. Although the unemployment rate has improved, it remained disconcertingly high at 9.7 percent in May. As such, many consumers may not have the confidence in their financial wherewithal to buy a home.
What's more, the weak application figures suggest that the housing market may be in store for a rocky few months, Gumbinger says. Fewer mortgage applications should lead to less sales activity and put prices under renewed pressure. "We are probably going to be in for a very slow summer even though interest rates are going to remain at pretty fabulous levels," he says. "Until you really start to have job growth again, and start to put incomes back together again, it's hard for families to get out there and jump in [to the housing market]."
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Applications Point to Slow Summer Housing Season