It was a seriously strong start to 2020 in the mortgage business for new home loans and refinances.
Total mortgage application volume surged 30.2% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
Refinancing led the surge, thanks to a drop in mortgage rates. Those applications jumped 43% for the week and were 109% higher than a year ago. The refinance share of mortgage activity increased to 62.9% of total applications from 58.9% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to the lowest level since September, 3.87%, from 3.91%, with points decreasing to 0.32 from 0.34 (including the origination fee) for loans with a 20% down payment. The rate was 87 basis points higher the same week one year ago.
“Refinances increased for both conventional and government loans, as lower rates provided a larger incentive for borrowers to act,” said Joel Kan, an MBA economist. “It remains to be seen if this strong refinancing pace is sustainable, but even with the robust activity the last two weeks, the level is still below what occurred last fall.”
Homebuyers also rushed in, sending purchase application volume up 16% for the week and up 8% from one year ago. Purchase mortgage activity hit the highest level since October 2009. Demand is so strong that real estate agents offered open houses on new properties the first weekend of the new year. Usually, they wait until February.
“Homebuyers were active the first week of the year. Low rates and the solid job market continue to encourage prospective buyers to enter the market,” Kan said.
Unfortunately, buyer demand is bumping up against near record-low supply. Price gains have reaccelerated, and if supply doesn’t improve markedly, some of the tightest markets will overheat quickly, leaving less affluent buyers out in the cold.